As filed with the Securities and Exchange Commission on May 14, 1996
Registration No. [ ]
SECURITIES AND EXCHANGE COMMISSION
----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WAXMAN USA INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5074
(Primary Standard Industrial Classification Code Number)
34-1761514
(I.R.S. Employer Identification Number)
24460 Aurora Road
Bedford Heights, Ohio 44146
(216) 439-1830
(Address, including zip code, and telephone number,
including area code, of registrant's principal offices)
----------
ARMOND WAXMAN
24460 Aurora Road
Bedford Heights, Ohio 44146
(216) 439-1830
(Name, address, including zip code, and telephone number,
including area code, of agents for service)
----------
Copies to:
SCOTT M. ZIMMERMAN, ESQ.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
(212) 758-9500
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED
SALE TO THE PUBLIC:
As soon as practicable after this registration statement
becomes effective.
If the only securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Class of Maximum Maximum
Securities Amount Offering Price Aggregate Amount of
to be Registered to be Registered(1) Per Note(1) Offering Price(1) Registration Fee
<C> <C> <C> <C> <C>
11 1/8% Senior $43,026,000 100% $43,026,000 $14,837.00
Notes of Waxman
USA Inc.
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) on the basis of the value of the senior notes
to be received by the registrant pursuant to the Exchange Offer
described herein on the estimated date of exchange, June __, 1996.
PAGE 1 OF ___ PAGES
EXHIBIT INDEX IS ON PAGE ____
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission acting pursuant to said
section 8(a), may determine.
----------
<PAGE>
WAXMAN USA INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING PROSPECTUS CAPTION OR LOCATION
-------------------------------- ------------------------------
A. INFORMATION ABOUT THE TRANSACTION
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Outside Front Cover Page of Prospectus
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Inside Front Cover and
Prospectus Outside Back Cover Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges, Prospectus Summary; Selected Financial Data; Risk
and Other Information Factors; Consolidated Financial Statements
4. Terms of the Transaction Prospectus Summary; Use of Proceeds; The
Exchange Offer; Certain Federal Income Tax
Considerations; Description of Notes
5. Pro Forma Financial Information Not Applicable
6. Material Contracts with the Company Being Not Applicable
Acquired
7. Additional Information Required for Reoffering Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by Reference Not Applicable
12. Information With Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information With Respect to Registrants Other Outside Front Cover Page of Prospectus; Available
Than S-3 or S-2 Registrants Information; Prospectus Summary; Risk Factors;
Selected Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Recent Securities Offering and Related
Matters; Consolidated Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies Not Applicable
16. Information With Respect to S-2 or S-3 Companies Not Applicable
17. Information With Respect to Companies Other Not Applicable
Than S-3 or S-2 Companies
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations Not Applicable
are to be Solicited
19. Information if Proxies, Consents or Authorizations Management; Principal Stockholders
are not to be Solicited, or in an Exchange Offer
</TABLE>
i
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 14, 1996
PRELIMINARY PROSPECTUS
OFFER FOR ANY AND ALL OUTSTANDING
SERIES A 111
IN EXCHANGE FOR
SERIES B 111
OF
WAXMAN USA INC.
THE EXCHANGE OFFER WILL EXPIRE AT
MIDNIGHT, NEW YORK CITY TIME, ON JUNE __, 1996,
UNLESS EXTENDED.
Waxman USA Inc., a Delaware corporation (the "Company"), a direct
wholly-owned subsidiary of Waxman Industries, Inc. ("Waxman Industries")
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to issue an aggregate principal amount at
maturity of up to $43,026,000 of Series B 111/8% Senior Notes due 2001 (the
"New Notes") of the Company in exchange for a like principal amount at
maturity of the issued and outstanding Series A 111/8% Senior Notes due 2001
(the "Old Notes" and, together with the New Notes, the "Notes") of the Company
from the holders (the "Holders") thereof.
The Old Notes were originally issued by the Company in a private
placement primarily to certain institutional and accredited investors. The Old
Notes are eligible for trading in the Private Offering, Resales and Trading
through Automated Linkages ("Portal") market and are eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, as amended (the
"Act"). After the Exchange Offer, the Old Notes that remain outstanding will
continue to be subject to the restrictions on transfer contained in the legend
thereon and may not be offered or sold except pursuant to an exemption from,
or in a transaction not subject to the registration requirements of, the Act.
The Company does not have any publicly traded securities.
The terms of the New Notes are identical in all material respects to
the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes. The terms of the Notes are governed by the
Indenture, dated as of April 1, 1996, between the Company and the United
States Trust Company of New York , as Trustee (the "Trustee"), and all
amendments and supplements thereto (the "Indenture"). A portion of the capital
stock of a subsidiary which comprises a portion of the assets of the Company
is pledged to the lenders under the Restated Term Loan (as defined herein)
(which has an outstanding principal balance of $5.0 million on May 9 , 1996).
The capital stock of the Company is privately held by Waxman Industries and
constitutes substantially all of Waxman Industries' assets. The net deficit of
the Company on March 31, 1996 was approximately $15.5 million. The Company is
dependent on distributions from its operating subsidiaries in order to meet
its obligations, including its payment obligations with respect to the Notes.
See "Risk Factors -- Reliance on Operations of Subsidiaries; Structural
Subordination" and "-- Restrictions Imposed by Terms of Indebtedness."
The Notes are general unsecured obligations of the Company, ranking
senior in right of payment to any future indebtedness of the Company that is
subordinated in right of payment to the Notes and pari passu in right of
payment to and with all other existing or future indebtedness of the Company.
See "Description of the Notes -- Ranking."
The New Notes and the Old Notes remaining after the Exchange Offer
mature on September 1, 2001. Interest on the Notes will be payable
semi-annually on March 1 and September 1 of each year, commencing September 1,
1996. The Notes are redeemable, in whole or in part, at the option of the
Company at any time and from time to time at the redemption prices set forth
therein, plus accrued and unpaid interest, if any, to the date of redemption.
See "Description of Notes -- Redemption."
In the event of a Change of Control (as defined herein), the Company
will be obligated to make an offer to purchase all outstanding Notes at a
redemption price of 101% of the principal amount thereof, plus accrued and
unpaid interest, if any.
On April 3, 1996, the Company issued the Old Notes in exchange for
$43,026,000 aggregate principal amount of Waxman Industries' then outstanding
13 3/4% Senior Subordinated Notes due June 1, 1999 (the "Senior Subordinated
Notes") pursuant to a private exchange offer (the "Private Exchange Offer")
which was a part of a series of interrelated transactions (the
"Reorganization"). In addition to the Private Exchange Offer, the components
of the Reorganization included (i) the solicitation of the consents of the
holders of the Senior Subordinated Notes to the adoption of certain amendments
to the indenture governing the Senior Subordinated Notes, (the "Senior
Subordinated
<PAGE>
Consent Solicitation"), (ii) the Barnett Public Offering (as defined herein),
(iii) the establishment of a $30.0 million Restated Credit Agreement (as
defined herein), (iv) the defeasance of Waxman Industries' Senior Secured
Notes (as defined herein) and (v) the repayment of certain borrowings under
the Company's existing revolving and term loan credit facilities. See "Recent
Securities Offering and Related Matters -- The Reorganization."
The offer and sale of the New Notes are being registered under the
Registration Statement of which this Prospectus forms a part in order to
satisfy certain obligations of the Company contained in the Registration
Rights Agreement, dated as of April 3, 1996, between the Company and the
Trustee, on behalf of the original purchasers of the Old Notes (the
"Registration Rights Agreement"). Based on interpretations by the Staff of the
Securities and Exchange Commission (the "Commission") set forth in certain
"no-action" letters issued to third parties and unrelated to the Company and
the Exchange Offer, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder which is
an "affiliate" of the Company within the meaning of Rule 405 under the Act),
without compliance with the registration and prospectus delivery provisions of
the Act, provided that such New Notes are acquired in the ordinary course of
such Holders' business and such Holders have no intention, nor any arrangement
with any person, to participate in the distribution of such New Notes. A
broker-dealer holding Old Notes may participate in the Exchange Offer provided
that it acquired the Old Notes for its own account as a result of
market-making or other trading activities. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Act. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. For a period of 180 days after the
Expiration Date (as defined herein), the Company will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
The Company will accept for exchange Old Notes validly tendered prior
to Midnight, New York City time, on June __, 1996, unless extended by the
Company in its sole discretion (the "Expiration Date"). Tenders of Old Notes
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer
is subject to certain customary conditions. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
The Company will not receive any proceeds from the Exchange Offer.
Pursuant to the Registration Rights Agreement, the Company will pay all the
expenses incident to the Exchange Offer. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Notes being tendered for exchange. In
the event the Company terminates the Exchange Offer and does not accept for
exchange any Old Notes, the Company will promptly return the Old Notes to the
Holders thereof. See "The Exchange Offer."
-----------------------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE NOTES HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE UNDER THE
SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE NOTES
ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD, DIRECTLY OR
INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF THE
SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THIS DOCUMENT MAY NOT BE PASSED ON IN THE UNITED KINGDOM TO ANY
PERSON UNLESS THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 9(3) OF THE
FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER
1988 OR IS A PERSON TO WHOM THIS DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR
PASSED ON.
<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR
A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY
DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE,
TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
-----------------------------------------
THE DATE OF THIS PROSPECTUS IS _______, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (together
with all amendments thereto referred to herein as the "Registration
Statement") under the Act, with the Commission covering the securities being
offered by this Prospectus. This Prospectus does not contain all the
information set forth or incorporated by reference in the Registration
Statement and the exhibits and schedules relating thereto, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement and the exhibits and schedules thereto which are on file at the
offices of the Commission and may be obtained upon payment of the fee
prescribed by the Commission, or may be examined without charge at the offices
of the Commission. Statements contained in this Prospectus as to the contents
of any contract or other documents referred to are not necessarily complete,
and are qualified in all respects by such reference.
The Company is not currently subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
However, pursuant to the Indenture, the Company is required, whether or not it
is subject to the informational requirements of the Exchange Act, to file
periodic reports, proxy statements and other information with the Commission.
The Registration Statement, as well as such periodic reports, proxy statements
and other information, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Suite 1400, Northwest Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661; and 7 World Trade Center, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY................................................................................................v
The Company...............................................................................................v
Background of Exchange Offer;
Recent Securities Offering and Related Matters...................................................vii
The Exchange Offer........................................................................................x
Consequences of Exchanging Old Notes
Pursuant to the Exchange Offer....................................................................xi
Summary Description of the New Notes....................................................................xii
Risk Factors...........................................................................................xiii
RISK FACTORS......................................................................................................1
Consequences of Failure to Exchange.......................................................................1
Leverage..................................................................................................1
Deferred Coupon Notes Interest Payments...................................................................2
Terms of the Restated Credit Agreement....................................................................2
Subordination to the Restated.............................................................................2
Reliance on Operations of Subsidiaries; Structural Subordination..........................................3
Restrictions Imposed by Terms of Indebtedness; Consequences of Failure to Comply..........................3
Control by Principal Stockholders; Certain Anti-Takeover Effects..........................................4
Deficiency of Earnings to Fixed Charges...................................................................4
Foreign Sourcing..........................................................................................4
Reliance on Key Customers.................................................................................4
Relationship with Waxman Industries.......................................................................5
Lack of Public Market.....................................................................................5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................10
General..................................................................................................10
Results of Operations....................................................................................11
Nine Months Ended March 31, 1995 vs. Nine Months Ended March 31, 1996....................................12
Year Ended June 30, 1994 vs. Year Ended June 30, 1995....................................................13
Year Ended June 30, 1993 vs. Year Ended June 30, 1994....................................................14
BUSINESS.........................................................................................................20
General..................................................................................................20
Consumer Products........................................................................................20
Barnett..................................................................................................21
Marketing and Distribution...............................................................................22
Products.................................................................................................24
Other Operations.........................................................................................24
Purchasing...............................................................................................25
Import Restrictions......................................................................................26
Competition..............................................................................................26
Employees................................................................................................26
Trademarks...............................................................................................26
Properties...............................................................................................26
Legal Proceedings........................................................................................28
Environmental Regulations................................................................................28
MANAGEMENT.......................................................................................................29
Directors and Executive Officers.........................................................................29
The Company..............................................................................................30
iii
<PAGE>
EXECUTIVE COMPENSATION...........................................................................................31
Employment Agreements....................................................................................32
Stock Option and SAR Grants..............................................................................33
Stock Option and SAR Exercises...........................................................................34
PRINCIPAL STOCKHOLDERS...........................................................................................35
Capital Stock of the Company.............................................................................35
RECENT SECURITIES OFFERING AND RELATED MATTERS...................................................................35
THE EXCHANGE OFFER...............................................................................................36
Purpose of Exchange Offer................................................................................36
Terms of the Exchange Offer; Period for Tendering Old Notes..............................................37
Procedures for Tendering Old Notes.......................................................................37
Acceptance of Old Notes for Exchange; Delivery of New Notes..............................................39
Book-Entry Transfer......................................................................................39
Guaranteed Delivery Procedures...........................................................................39
Withdrawal Rights........................................................................................40
Certain Conditions to the Exchange Offer.................................................................40
Exchange Agent...........................................................................................41
Fees and Expenses........................................................................................42
Transfer Taxes...........................................................................................42
Consequences of Failure to Exchange......................................................................42
DESCRIPTION OF THE NOTES.........................................................................................43
General..................................................................................................43
Maturity, Interest and Principal.........................................................................43
Redemption...............................................................................................43
Change of Control........................................................................................44
Provision of Financial Information.......................................................................44
Certain Covenants........................................................................................44
Consolidation, Merger, Conveyance, Transfer or Lease.....................................................48
Events of Default........................................................................................49
Defeasance...............................................................................................50
Satisfaction and Discharge...............................................................................51
Amendments and Waivers...................................................................................51
Regarding the Trustee....................................................................................51
Certain Definitions......................................................................................51
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS........................................................................58
The Restated Credit Agreement............................................................................58
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS........................................................................59
Exchange of Notes........................................................................................60
Backup Withholding and Information Reporting.............................................................61
USE OF PROCEEDS..................................................................................................61
PLAN OF DISTRIBUTION.............................................................................................61
LEGAL MATTERS....................................................................................................62
EXPERTS .........................................................................................................62
</TABLE>
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and
financial statements appearing elsewhere in this Prospectus. References in
this Prospectus to a particular fiscal year refer to the 12-month period ended
on June 30 in that year. Unless the context otherwise indicates, all
references to "Waxman Industries" and the "Company" are to Waxman Industries,
Inc. and to Waxman USA Inc., its subsidiaries and to the business conducted
through Waxman USA's subsidiaries and their divisions, respectively, and
include the operations of Waxman Consumer Products Group Inc. ("Consumer
Products"). As a result of Waxman Industries' prior determination to sell its
Consumer Products business, Consumer Products was reported by Waxman
Industries as a discontinued operation as of June 30, 1995. In connection with
the recently completed initial public offering of Barnett Inc. ("Barnett"),
formerly a wholly-owned indirect subsidiary of the Company, Waxman Industries
ceased its efforts to sell Consumer Products effective March 31, 1996.
Accordingly, unless the context otherwise indicates, the information contained
in this Prospectus reflects Consumer Products as a continuing operation.
THE COMPANY
The Company believes it is one of the leading suppliers of plumbing
products to the repair and remodeling market in the United States. The Company
distributes plumbing, hardware and electrical products to approximately 50,000
customers in the United States, including, plumbing and electrical repair and
remodeling contractors and independent retailers. The Company's consolidated
net sales were $232.3 million in fiscal 1995 and $175.5 for the nine months
ended March 31, 1996.
The Company conducts its business primarily through its wholly-owned
subsidiary Consumer Products and through Barnett, of which the Company owns
approximately 45% of the outstanding common stock, and, through the ownership
of certain convertible non-voting preferred stock, approximately a 54%
economic interest. The Company also owns several smaller operations. Consumer
Products markets and distributes approximately 9,400 products to a wide
variety of retailers, primarily do-it-yourself ("D-I-Y") warehouse home
centers, home improvement centers, mass merchandisers, hardware stores and
lumberyards. Consumer Products' customers include large national retailers
such as Kmart, Builders Square and Wal-Mart, as well as large regional D-I-Y
retailers such as Fred Meyer Inc. According to rankings of the largest D-I-Y
retailers published in National Home Center News, an industry trade
publication, Consumer Products' customers include 15 of the 25 largest D-I-Y
retailers in the United States. Consumer Products works closely with its
customers to develop comprehensive marketing and merchandising programs
designed to improve their profitability, efficiently manage shelf space,
reduce inventory levels and maximize floor stock turnover.
Consumer Products' marketing strategy includes offering mass
merchandisers and D-I-Y retailers a comprehensive merchandising program which
includes design, layout and setup of selling areas. Sales and service
personnel assist the retailer in determining the proper product mix in
addition to designing department layouts to effectively display products and
optimally utilize available floor and shelf space. Consumer Products supplies
point-of- purchase displays for both bulk and packaged products, including
color-coded product category signs and color- coordinated bin labels to help
identify products, and backup tags to signify products that require
reordering. Consumer Products also offers certain of its customers the option
of private label programs for their plumbing and floor care products. In-house
design, assembly and packaging capabilities enable Consumer Products to react
quickly and effectively to service its customers' changing needs. In addition,
Consumer Products' products are packaged and designed for ease of use, with
"how to" instructions included to simplify installation, even for the
uninitiated D-I-Y consumer. Consumer Products' net sales for fiscal 1995 and
the nine months ended March 31, 1996, were $72.0 million and $47.1 million,
respectively. The Company currently is reevaluating the strategic direction of
Consumer Products with a view to eliminating certain product lines, optimizing
product offerings and rationalizing certain warehousing costs and evaluating
the carrying value of certain long-lived assets. The Company is currently
contemplating exiting from the distribution of electrical products to further
focus the strategic direction of Consumer Products. The Company believes that
the reevaluation of Consumer Products' strategic focus will initially result
in a decrease in net sales but will strengthen and improve the Consumer
Products business in the long-term.
v
<PAGE>
Barnett is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to over 40,000 active customers
throughout the United States. Barnett offers approximately 8,500 name brand
and private label products through its industry-recognized Barnett(R) catalogs
and telesales operations. Barnett markets its products through three distinct,
comprehensive catalogs that target professional contractors, independent
hardware stores and maintenance managers. Barnett's staff of over 70
knowledgeable telesalespersons, customer service and technical support
personnel work together to serve customers by assisting in product selection
and offering technical advice. To provide rapid delivery and a strong local
presence, Barnett has established a network of 28 distribution centers
strategically located in 28 major metropolitan areas throughout the United
States. Through these local distribution centers, approximately two-thirds of
Barnett's orders are shipped directly to the customer, usually within 24 hours
of an order. The remaining one-third of the orders are picked up by the
customer at one of Barnett's local distribution centers. Barnett's strategy of
being a low-cost, competitively priced supplier is facilitated by its volume
of purchases and offshore sourcing of a significant portion of its private
label products. Products are purchased from over 400 domestic and foreign
suppliers.
Barnett believes that its distinctive business model has enabled it to
become a high-volume, cost-efficient direct marketer of competitively priced
plumbing, electrical and hardware products. Barnett's approximately 500-page
catalogs offer an extensive selection of products in an easy to use format
enabling customers to consolidate purchases with a single vendor. Barnett
provides an updated version of its catalogs to its customers on average four
times a year. To attract new customers and offer special promotions to
existing customers, Barnett supplements its catalogs with monthly promotional
flyers. Barnett's experienced and knowledgeable inbound telesales staff,
located at Barnett's centralized headquarters in Jacksonville, Florida, uses
Barnett's proprietary information systems to take customer orders as well as
offer technical advice. Barnett's highly trained outbound telesales staff
maintains frequent customer contact, makes telesales presentations and
encourages additional purchases. Targeted customer accounts are typically
assigned an outbound telesalesperson in order to enhance customer
relationships and improve customer satisfaction. Barnett's high in-stock
position and extensive network of local distribution centers enable it to
fulfill approximately 94% of the items included in each customer order and
provide rapid delivery. Barnett's net sales were $109.1 million and $93.4
million in fiscal 1995 and the nine months ended March 31, 1996, respectively.
The Company has several smaller operations which are conducted through
its other wholly-owned subsidiaries, WOC Inc. ("WOC") and TWI, International,
Inc. ("TWI"). WOC includes four operations, the largest of which are U.S. Lock
("U.S. Lock") - a distributor of a full line of security hardware products and
LeRan Copper & Brass ("LeRan") a supplier of copper tubing, brass fittings and
other related products. WOC's other operations also include its Madison
Equipment division, a supplier of electrical products, and its Medal
Distributing division, a supplier of hardware products. TWI includes foreign
sourcing operations in Mexico, China and Taiwan which support Consumer
Products, Barnett and WOC. Net sales from these smaller operations were $51.2
million and $35.0 million in fiscal 1995 and the nine months ended March 31,
1996, respectively.
vi
<PAGE>
The current corporate structure of Waxman Industries and its
subsidiaries is as follows:
[THE GRAPHIC IMAGE OF THE CHART BELOW WHICH APPEARS ON THE "PRINTED" PAGE IS
REPLACED HEREIN DUE TO INCOMPATIBILITY WITH EDGAR FORMAT AND IS REPRESENTED
HEREBELOW WITH A FAIR AND ACCURATE REPRESENTATION OF THE MATERIAL CONTENT OR
THE ORIGINAL GRAPHIC IMAGE]
<TABLE>
<S> <C>
WAXMAN INDUSTRIES, INC.
ISSUER OF DEFERRED COUPON
NOTES
|
|
|
WAXMAN USA INC.
ISSUER OF THE NOTES
|
|
- - - - - - - - --------------------------------------------------------------------------
| | | |
| | | |
WAXMAN TWI,
BARNETT CONSUMER WOC INC. INTERNATIONAL,
INC.(1) PRODUCTS GROUP INC. AND
INC. SUBSIDIARIES
</TABLE>
(1) The Company beneficially owns approximately 49.9% of the voting capital
stock of Barnett and, together with non-voting preferred stock of Barnett
owned by the Company, approximately 54% of the capital stock of Barnett.
BACKGROUND OF EXCHANGE OFFER;
RECENT SECURITIES OFFERING AND RELATED MATTERS
In connection with the Barnett Public Offering (as defined herein) and
as part of the Company's efforts to decrease its leverage and increase its
financial flexibility, the Company consummated the Private Exchange Offer
pursuant to which it exchanged $43,026,000 principal amount of Waxman
Industries' Senior Subordinated Notes for a like principal amount of the
Company's Old Notes and in connection therewith solicited consents to certain
amendments to the indenture pursuant to which the Senior Subordinated Notes
were issued. Generally, the amendments to the Senior Subordinated Note
indenture eliminated virtually all of the restrictive covenants and events of
defaults previously contained in such indenture. The Private Exchange Offer
decreased the Company's cash interest burden and extended the maturity of the
Senior Subordinated Notes exchanged in the Private Exchange Offer by several
years.
In August 1995, the Company announced that it had decided to sell its
Consumer Products business and entered into a letter of intent, which
subsequently expired, which contemplated the sale of the Consumer Products
business, together with certain supporting operations and certain home center
accounts now serviced by Barnett, to a group consisting of HIG Capital
Management of Miami, Florida along with certain members of Consumer Products'
existing management team for an aggregate cash purchase price of $50 million
plus other consideration which would have given the Waxman Industries
approximately a 25% economic interest in Consumer Products on a going forward
basis. Since the consummation of the Barnett Public Offering, the Company has
ceased its efforts to sell Consumer Products and instead retains and continues
to operate Consumer Products and, for the nine month period ended March 31,
1996, reported its results as a continuing operation.
On February 1, 1996, Barnett filed a registration statement with the
Commission with respect to an initial public offering (the "Barnett Public
Offering") of its common stock (the "Barnett Common Stock"). On March 28,
1996, the
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registration statement with respect to the Barnett Public Offering was
declared effective and on April 3, 1996, the Barnett Public Offering was
consummated. In such offering, 7,207,200 shares, representing approximately
55.1% of the Barnett Common Stock, were sold in the aggregate by Barnett and
the Company at an initial public offering price per share of $14.00, resulting
in aggregate net proceeds of $93.4 million. As of May 8, 1996, as a result of
the Company's ownership of certain convertible non-voting preferred stock of
Barnett, the Company beneficially owns approximately 49.9% of the Barnett
Common Stock and approximately a 54% economic interest of the capital stock of
Barnett.
Of the $48.5 million of net proceeds received by Barnett in the
Barnett Public Offering, Barnett used (i) approximately $23.0 million to repay
all of the outstanding indebtedness borrowed by it under the secured credit
facility (the "Operating Companies Revolving Credit Facility") among Citicorp
USA, Inc., as agent, Barnett, Consumer Products and WOC, (ii) $22.0 million to
pay a dividend evidenced by a note payable to the Company and (iii) $3.5
million for working capital. The $44.9 million of net proceeds received by the
Company from the Barnett Public Offering, together with payment from Barnett
of the $22.0 note payable described above, were, or will be, applied primarily
to repay debt including (i) all of the $39.2 million principal amount of
Waxman Industries' 12 1/4% Senior Secured Notes due 1998 and Floating Rate
Senior Secured Notes due 1998 (collectively, the "Senior Secured Notes") plus
accrued interest and redemption premium of approximately $1.7 million, thereby
eliminating the mandatory sinking fund requirements relating to the Senior
Secured Notes which were scheduled to commence in September 1996 and (ii)
approximately $5.0 million of the $10.0 million outstanding indebtedness and
accrued interest under the secured term loan (the "Term Loan") among Citibank,
N.A., as agent, Barnett, Consumer Products and WOC. The remaining net proceeds
received by the Company (approximately $21.0 million) are intended to be used
to (i) reduce additional outstanding indebtedness borrowed by Consumer
Products and WOC under the Operating Companies Revolving Credit Facility
and/or (ii) retire the Company's 12 3/4 Senior Secured Deferred Coupon Notes
due 2004 (the "Deferred Coupon Notes") and/or Notes and/or (iii) reinvest in
Consumer Products' and/or WOC's businesses. The Company's business strategy
includes reducing its leverage by the sale of selected assets and to refinance
its remaining indebtedness whenever possible. In addition, the Company
believes that the Barnett Public Offering will be beneficial to the growth and
earnings potential of Barnett.
Under current accounting pronouncements, upon consummation of the
Barnett Public Offering, the Company would account for its remaining interest
in Barnett under the equity method of accounting, as the Company's voting
interest will be less than 50%. However, the Financial Accounting Standards
Board has issued an exposure draft (the "FASB Exposure Draft") on
"Consolidated Financial Statements: Policy and Procedures," which, if adopted
in substantially the same form as the FASB Exposure Draft, would require the
Company to continue to consolidate Barnett in the Company's consolidated
financial statements. As such, the pro forma information set forth herein
presents the results of the Company under the accounting standards of the FASB
Exposure Draft, whereas the as adjusted information set forth herein presents
the results of the Company in accordance with current accounting
pronouncements.
In connection with the Barnett Public Offering, Waxman USA entered
into an amendment and restatement of the Operating Companies Revolving Credit
Facility and Term Loan (the "Restated Credit Agreement") to provide for, among
other things, an approximately one year secured credit facility providing for
revolving credit advances of up to $25.0 million and term loans of up to $5.0
million ("Restated Term Loans") and a release of Barnett from such lending
arrangements. As a result of the limited duration of the Restated Credit
Agreement, the Company is currently negotiating with respect to a refinancing
of such credit facility. Although the Company believes, based on discussions
to date, that it will be able to refinance the Restated Credit Agreement
before its expiration, there can be no assurance that it will be able to do so
or as to the terms of any such refinancing it is able to obtain.
Revolving credit advances under the Restated Credit Agreement will be
subject to borrowing base formulas and will bear interest at (i) the per annum
rate of 1.5% plus the highest of (a) the prime rate of Citibank, N.A. or (b)
the federal funds rate plus 0.5% and a formula with respect to three month
certificates of deposit of major United States money market banks or (ii)
LIBOR plus 3.0%. The Restated Credit Agreement includes a letter of credit
subfacility of $4.0 million. Restated Term Loans will bear interest at a rate
per annum equal to 2.0% over the interest rate applicable to revolving credit
advances under the Restated Credit Agreement (including the LIBOR option).
Borrowings under the Restated Credit Agreement will be secured by the accounts
receivable, inventory, certain general intangibles and unencumbered fixed
assets of Consumer Products and WOC (the "Borrowers") and 65% of the capital
stock of one subsidiary of TWI and 100% of the capital stock of another such
subsidiary. In addition, Restated Term Loans will also be secured by a pledge
of 500,000 shares of Barnett Common Stock owned by the Company. The Restated
Credit Agreement will require the Borrowers to
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maintain cash collateral accounts into which all available funds are deposited
and applied to service the facility on a daily basis. The Restated Credit
Agreement will prevent dividends and distributions by the Borrowers except in
certain limited instances including, so long as there is no Default or Event
of Default, and the Company is in compliance with certain financial covenants,
the payment of interest on the Senior Subordinated Notes and Notes, and will
contain customary negative, affirmative and financial covenants and
conditions.
The Restated Credit Agreement contains only the events of default
contained in the Operating Companies Revolving Credit Facility, which include
the following: (i) any Borrower shall fail to make any payment of principal or
interest or any other amount due under the agreements related to the Restated
Credit Agreement or fail to perform any covenant (after the expiration of any
applicable grace period) thereunder, or any representation or warranty made in
connection therewith shall prove to have been incorrect in any material
respect when made or deemed made; (ii) Waxman Industries or any of its
subsidiaries shall fail to pay any indebtedness having a principal amount of
$5,000,000 or more; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such indebtedness, if the
effect of such event or condition is to accelerate, or to permit the
acceleration of (after the expiration of any applicable period of grace), the
maturity of such indebtedness; or any such indebtedness shall become or be
declared to be due and payable, or required to be repaid (other than by a
regularly scheduled required prepayment), or Waxman Industries or any of its
subsidiaries shall be required to repurchase or offer to repurchase such
indebtedness, prior to the stated maturity thereof; (iii) certain events of
bankruptcy with respect to Waxman Industries or any of its subsidiaries; (iv)
there shall occur any Change of Control (as defined in the Restated Credit
Agreement; and (v) there shall occur a Material Adverse Effect (as defined in
the Restated Credit Agreement) or an event which would have a Material Adverse
Effect (as defined in the Restated Credit Agreement).
The Old Notes were issued pursuant to exemptions from, or transactions
not subject to, the registration requirements of the Act and applicable state
securities laws. The Company structured the offering of the Old Notes as a
private placement in order to consummate such offering on a more expeditious
basis than would have been possible had the offering and sale been registered
under the Act. The original purchasers of the Old Notes, as a condition to
their purchase of the Old Notes, required the Company to enter into the
Registration Rights Agreement pursuant to which the Company agreed, among
other things, to promptly commence the Exchange Offer following the offering
of the Old Notes. The Company has prepared and filed the Registration
Statement of which this Prospectus forms a part with the Commission pursuant
to the Registration Rights Agreement. See "Recent Securities Offering and
Related Matters -- Registration Rights Agreement."
See "Recent Securities Offering and Related Matters" for a discussion
of the offering of Old Notes, the agreements referred to above and additional
related agreements. See "Description of Notes" for a discussion of the terms
of the Notes.
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THE EXCHANGE OFFER
Securities Offered
Up to $43,026,000 principal amount of Series B 111/8%
Senior Notes (the "New Notes" and, collectively with the Old
Notes, the "Notes"). The terms of the New Notes and the Old
Notes are identical in all material respects, except for certain
transfer restrictions and registration rights relating to the Old
Notes.
The Exchange Offer
The New Notes are being offered in exchange for a like
principal amount of Old Notes. The issuance of the New
Notes is intended to satisfy obligations of the Company
contained in the Registration Rights Agreement, dated as of
April 3, 1996, by and between the Company and the Trustee,
on behalf of the original purchasers of the Old Notes. For
procedures for tendering, see "The Exchange Offer."
Tenders, Expiration Date;
Withdrawal
The Exchange Offer will expire at Midnight, New York City time, on June __,
1996, or such later date and time to which it is extended (the "Expiration
Date"). The tender of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination
of the Exchange Offer.
Conditions of the
Exchange Offer
The Exchange Offer is subject to customary conditions, any
or all of which may be waived by the Company in its sole
discretion. See "The Exchange Offer -- Certain Conditions to
the Exchange Offer."
Interest on the New
Notes and Old Notes
Interest on the Notes will accrue at the rate of 111/8% per annum until
maturity and will be payable semi-annually commencing on September 1, 1996.
Each New Note will bear interest from its issuance date. Old Notes that are
accepted for exchange will accrue interest up to, but not including and not
after, the date of issuance of the New Notes. Such interest on the Old Notes
properly surrendered for exchange shall be payable upon the first interest
payment date of the New Notes. See "Description of Notes -- Interest."
Acceptance of Old Notes and
Delivery of New Notes
The Company will accept for exchange Old Notes which are properly tendered in
the Exchange Offer prior to Midnight, New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The Exchange Offer -- Terms of
the Exchange Offer; Period for Tendering Old Notes."
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Federal Income Tax
Consequences
The exchange pursuant to the Exchange Offer will not result
in any income, gain or loss to the holders of the Notes (the
"Holders") or the Company for federal income tax purposes.
See "Certain Federal Income Tax Considerations."
Use of Proceeds
There will be no proceeds to the Company from the exchange
pursuant to the Exchange Offer.
Exchange Agent
The Huntington National Bank is serving as Exchange Agent
in connection with the Exchange Offer.
CONSEQUENCES OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Based on interpretations of the Staff of the Commission set forth in
certain "no-action" letters issued to third parties and unrelated to the
Company and the Exchange Offer, the Company believes that Holders of Old Notes
(other than any Holder who is an "affiliate" of the Company within the meaning
of Rule 405 under the Act) who exchange their Old Notes for New Notes pursuant
to the Exchange Offer may offer such New Notes for resale, resell such New
Notes, and otherwise transfer such New Notes without compliance with the
registration and prospectus delivery provisions of the Act; provided such New
Notes are acquired in the ordinary course of the Holder's business and such
Holder has no intention, nor any arrangement with any person, to participate
in a distribution of such New Notes. Based on the foregoing "no-action"
letters, the Company believes that a broker-dealer holding Old Notes may
participate in the Exchange Offer provided that it acquired the Old Notes for
its own account as a result of market-making or other trading activities. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes must acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or selling such New Notes.
The Company does not currently intend to register or qualify the sale of the
New Notes in any such jurisdiction. If a Holder of Old Notes does not exchange
such Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes
will continue to be subject to the restrictions on transfer contained in the
legend thereon. In general, the Old Notes may not be offered or sold, unless
registered under the Act, except pursuant to an exemption from, or in a
transaction not subject to, the Act and applicable state securities laws. See
"The Exchange Offer -- Purpose of the Exchange Offer and -- Consequences of
Failure to Exchange."
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SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Old Notes. The terms of the Notes are governed by the
Indenture, dated as of April 1, 1996, between the Company and the United
States Trust Company of New York, as Trustee, and all amendments or
supplements thereto (the "Indenture").
Securities Offered
$43,026,000 aggregate principal amount of Series B 111/8%
Senior Notes Due 2001.
Interest Payments
Commencing on the Exchange Date, interest on the New
Notes will accrue at the rate of 111/8% per annum, payable semi-annually,
commencing September 1, 1996.
Maturity Date
September 1, 2001.
Optional Redemption
The New Notes will be redeemable, in whole or in part, at the option of the
Company at any time and from time to time, at the redemption prices set forth
herein, plus accrued interest.
Change of Control
In the event of a Change of Control, the Company is obligated
to make an offer to purchase all outstanding New Notes at
101% of the principal amount thereof plus accrued and
unpaid interest, if any. A Change of Control includes a
management buyout or similar transaction by the Company's
management and/or directors and their respective affiliates
(but does not include any such transaction by Melvin and/or
Armond Waxman). A Change of Control also includes a sale
by the Company of all or substantially all of its assets, which
under applicable governing law is construed to mean the sale
of assets quantitatively vital to the operation of the Company
and which is out of the ordinary and substantially affects the
existence and purpose of the Company.
Asset Sale Proceeds
The Company is obligated in certain circumstances to make
an offer to purchase New Notes at a redemption price of
100% of the principal amount thereof plus accrued and
unpaid interest, if any, with the net cash proceeds of certain
sales or other dispositions of assets.
Ranking
The Notes are general unsecured obligations of the Company,
ranking pari passu in right of payment to any future
indebtedness of the Company that is not subordinated in right
of payment to the Notes and senior in right of payment to any
future indebtedness of the Company that is subordinated in
right of payment to the Notes. The Notes will be structurally
subordinated to the Restated Credit Agreement and any
refinancing thereof.
Certain Covenants
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and its subsidiaries to
incur additional indebtedness, transfer or sell assets, pay
dividends, make certain other restricted payments and
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investments, create liens or enter into sale lease-back transactions,
transactions with affiliates and mergers.
For more complete information regarding the Notes, see "Description of
Notes."
RISK FACTORS
Holders of Old Notes should carefully consider the specific factors set
forth under "Risk Factors," as well as the other information and data included
in this Prospectus.
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RISK FACTORS
Holders of Old Notes should consider carefully all of the information
set forth in this Prospectus and, in particular, should evaluate the following
risks before tendering their Old Notes in the Exchange Offer, although the
risk factors set forth below (other than the first risk factor) are generally
applicable to the Old Notes, as well as the New Notes.
Consequences of Failure to Exchange. Holders of Old Notes who do not
exchange their Old Notes for New Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Old Notes as
set forth in the legend thereon as a consequence of the issuance of the Old
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Act and applicable state securities laws. In
general, the Old Notes may not be offered or sold, unless registered under the
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Act and applicable state securities laws. The Company does not currently
anticipate that it will register the offer and sale of the Old Notes under the
Act. Based on interpretations by the Staff of the Commission, set forth in
certain "no- action" letters issued to third parties and unrelated to the
Company and the Exchange Offer, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than by any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Act) without compliance with the registration and prospectus
delivery provisions of the Act provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders have no
intention, nor any arrangement with any person, to participate in the
distribution of such New Notes. Based on the foregoing "no-action" letters,
the Company believes that a broker-dealer holding Old Notes may participate in
the Exchange Offer provided that it acquired the Old Notes for its own account
as a result of market-making or other trading activities. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Act.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading activities. For a
period of 180 days after the Expiration Date (as defined herein), the Company
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. The Company does not currently intend to
register or qualify the sale of the New Notes in any such jurisdiction.
Leverage. The Company has a high degree of leverage. At March 31,
1996, the Company had outstanding approximately $137.4 million of consolidated
indebtedness (excluding approximately $32.2 million of trade payables and
accrued liabilities). At March 31, 1996, on a pro forma basis, after giving
effect to the Private Exchange Offer and the Barnett Public Offering and the
application of the net proceeds therefrom, the Company would have had
outstanding approximately $52.9 million of consolidated indebtedness
(excluding $29.3 million of trade payables and accrued liabilities). On an as
adjusted basis, at March 31, 1996, after giving effect to the Private Exchange
Offer and the consummation of the Barnett Public Offering and the application
of net proceeds therefrom, the Company, accounting for Barnett under the
equity method of accounting, would have had approximately $52.9 million of
consolidated indebtedness (excluding $17.2 million of trade payables and
accrued liabilities). This high degree of leverage may have important
consequences to the Company, including the following: (i) the ability of the
Company to obtain additional financing in the future for working capital,
capital expenditures, debt service requirements or other purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from
operations will be required to satisfy its debt service obligations; (iii) the
Company may be more highly leveraged than its competitors, which may place it
at a competitive disadvantage; and (iv) the Company's high degree of leverage
may make it more vulnerable in the event of a downturn in its business and may
limit its ability to capitalize on business opportunities. In addition to the
other matters set forth herein under "Risk Factors," the Company's future
performance is subject to prevailing economic conditions and financial,
business and other factors, many of which factors are beyond the Company's
control. The Company currently believes that it must obtain a significant
infusion of funds, either through additional debt refinancing transactions or
the sale of equity and/or assets before any further significant deleveraging
can occur. Cash interest on Waxman Industries' Deferred Coupon Notes is
payable semi-annually commencing December 1999. Waxman Industries'
management's current projections indicate that there will not be sufficient
cash flow from operations to make the $5.7 million principal payment due in
June 1999 on the
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Senior Subordinated Notes not exchanged in the Private Exchange Offer or the
December 1999 cash interest payment on Waxman Industries' Deferred Coupon
Notes. Accordingly, Waxman Industries' management currently intends to pursue
a sale of assets or other capital raising transaction to satisfy such cash
requirements. However, there can be no assurances that Waxman Industries or
the Company will be able to consummate any such sale or capital raising
transaction. There can also be no assurance that Waxman Industries or the
Company will be able to refinance the Deferred Coupon Notes or the Notes at or
prior to their respective maturities. In addition, Waxman Industries is a
holding company with no operations of its own and, therefore, its ability to
pay cash interest on the Deferred Coupon Notes commencing in December 1999,
and any debt service for the approximately $5.7 million principal amount of
Senior Subordinated Notes not tendered in the Private Exchange Offer will
require an increase in the Company's cash flow from current levels or a
substantial reduction in the Company's level of indebtedness or the completion
of other capital raising transactions, including asset sales. There can be no
assurance that such increase in cash flow or reduction in indebtedness or
other capital raising transaction will occur.
Waxman Industries has a high degree of leverage. At March 31, 1996,
Waxman Industries had consolidated indebtedness of approximately $204.2
(excluding approximately $30.0 million of trade payable and accrued
liabilities). At March 31, 1996, on a pro forma basis, after giving effect to
the Private Exchange Offer and the Barnett Public Offering and the application
of the net proceeds therefrom, Waxman Industries' indebtedness (excluding
$27.1 million of trade payables and accrued liabilities) would have been
$119.7 million on a consolidated basis including Barnett. On an as adjusted
basis, at March 31, 1996, after giving effect to the Private Exchange Offer
and the consummation of the Barnett Public Offering, and the application of
net proceeds therefrom, Waxman Industries, accounting for Barnett under the
equity method of accounting, would have had approximately $119.7 million of
consolidated indebtedness (excluding $14.9 million of trade payables and
accrued liabilities). If there was an event of default under the indenture
governing the Deferred Coupon Notes (the "Deferred Coupon Note Indenture")
which resulted in a foreclosure upon the collateral securing the Deferred
Coupon Notes, such foreclosure would likely constitute a change of control
under the Indenture (which change of control could result in an event of
default if the Company did not have sufficient funds to repurchase all of the
outstanding Notes tendered pursuant to a Change of Control Offer (as defined
herein)).
Deferred Coupon Notes Interest Payments. The terms of Waxman
Industries' Deferred Coupon Notes require cash interest payable semi-annually
commencing December 1999. Waxman Industries' management's current projections
indicate that there will not be sufficient cash flow from operations to make
the December 1999 cash interest payment. See "--Leverage." Accordingly, Waxman
Industries' management currently intends to pursue a sale of assets or other
capital raising transaction to satisfy such cash interest requirements.
However, there can be no assurances that Waxman Industries or the Company will
be able to consummate any such sale or capital raising transaction. There can
also be no assurance that Waxman Industries or the Company will be able to
refinance the Deferred Coupon Notes on or prior to their maturity. If there
was an event of default under the Deferred Coupon Note Indenture which
resulted in a foreclosure upon the collateral securing the Deferred Coupon
Notes, such foreclosure would likely constitute a change of control under the
Indenture (which change of control could result in an event of default if the
Company did not have sufficient funds to repurchase all of the outstanding
Notes tendered pursuant to a Change of Control Offer).
Terms of the Restated Credit Agreement. The Company is currently
party to the Restated Credit Agreement. As permitted by the Indenture and
under the terms of the Restated Credit Agreement, 500,000 shares of Barnett
Common Stock are pledged to the lenders under the Restated Credit Agreement to
secure repayment of the Term Loans. The Restated Credit Agreement is an
approximately one year secured credit facility. As a result of the limited
duration of the Restated Credit Agreement, the Company is currently
negotiating with respect to a refinancing of such credit facility. Although
the Company believes, based on discussions to date, that it will be able to
refinance the Restated Credit Agreement before its expiration, there can be no
assurance that it will be able to do so or as to the terms of any such
refinancing it is able to obtain.
Subordination to the Restated Credit Agreement. The Notes are general
unsecured obligations of the Company. The Notes are structurally subordinated
to the obligations of Consumer Products and WOC under the Restated Credit
Agreement. Any default or event of default under the Deferred Coupon Note
Indenture or the Indenture would constitute an event of default under the
Restated Credit Agreement permitting acceleration thereunder and permitting
the holders of such debt to enforce their security interest in the assets
securing the Restated Credit Agreement, which include, substantially all the
assets of Consumer Products and WOC, 65% of the capital stock of the direct
subsidiary of TWI and
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500,000 shares of Barnett Common Stock. There can be no assurance that such
collateral would be sufficient to repay in full borrowings under the Restated
Credit Agreement if they became due.
Reliance on Operations of Subsidiaries; Structural Subordination. The
Company is a holding company whose only material assets are the capital stock
of the Operating Companies and TWI. The Company conducts no business and is
dependent on distributions from the Operating Companies and TWI in order to
meet its debt service obligations. There can be no assurance that
distributions from the Operating Companies and TWI will be adequate to fund
the required payments under the Company's debt obligations including interest
and principal payments on the Notes. In addition, the Restated Credit
Agreement and applicable state laws will impose significant restrictions on
the payment of dividends and, with respect to the Restated Credit Agreement,
the making of loans by the Operating Companies and TWI to the Company. See
"Description of Certain Other Indebtedness--The Restated Credit Agreement." If
an initial public offering of the capital stock of any of the Operating
Companies or TWI is consummated, the ability of the Operating Companies or TWI
to (x) pay dividends to the Company would be diminished to the extent of any
such capital stock sold to the public and as may be further limited by any
lender which provides financing to such public company and (y) make loans to
the Company would be limited to the extent that such transactions would have
to be fair to the holders of such capital stock.
In addition, since the consummation of the Barnett Public Offering,
the cash flow generated by such operations is no longer available to the
Company. Since the consummation of the Barnett Public Offering, the Company
and Waxman Industries rely primarily on Consumer Product for cash flow.
Consumer Products' customers include D-I-Y warehouse home centers, home
improvement centers, mass merchandisers, hardware stores and lumberyards.
Consumer Products may be adversely effected by prolonged economic downturns or
significant declines in consumer spending. There can be no assurance that any
such prolonged economic downturn or significant decline in consumer spending
will not have a material adverse impact on Consumer Products' business and its
ability to generate cash flow. See " -- Reliance on Key Customers." Further,
as indicated in "Recent Developments" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company is
currently reevaluating the strategic direction of Consumer Products. As a
result of this reevaluation, the Company expects to incur restructuring
charges in its quarter ending June 30, 1996 relating to the elimination of
certain product lines, the optimization of product offerings and the
reexamination of certain warehousing costs and evaluating the carrying value
of certain long-lived assets. Although the Company believes that the
reevaluation of Consumer Products' strategic direction will improve its
earnings potential, there can be no assurance that Consumer Products results
of operations will improve over time.
The Company derives all of its operating income from its wholly-owned
subsidiaries. As a result of this holding company structure, the creditors of
the Company, including the holders of the Notes, are structurally subordinated
to all creditors of such subsidiaries with respect to the assets of such
subsidiaries, including the lenders under the Restated Credit Agreement and
trade creditors. Accordingly, in the event of a dissolution, bankruptcy or
reorganization of any such subsidiary, the holders of the Notes will not be
entitled to receive amounts from any such subsidiary until after payment in
full of all creditors of such subsidiary. At March 31, 1996, on a pro forma
basis after giving effect to the Private Exchange Offer and the consummation
of the Barnett Public Offering, the aggregate amount of indebtedness to which
the holders of Notes would have been structurally subordinated was
approximately $9.9 million.
Restrictions Imposed by Terms of Indebtedness; Consequences of
Failure to Comply. The terms and conditions of the Indenture, other
indebtedness of Waxman Industries and the Company and the Restated Credit
Agreement impose, and any other future indebtedness of Waxman Industries and
the Company will impose, material restrictions that affect, among other
things, the ability of Waxman Industries and the Company and/or their
respective subsidiaries to incur debt, pay dividends, make acquisitions,
create liens, sell assets and make certain investments and materially change
the nature or conduct of their business. The breach of any of the foregoing
covenants would result in a default under the applicable debt instrument
permitting the holders of indebtedness outstanding thereunder, subject to
applicable grace periods, to accelerate such indebtedness. Any such
acceleration may cause a cross-default under the instruments evidencing other
indebtedness of Waxman Industries and/or the Company, including the Indenture,
and there can be no assurance that Waxman Industries and/or the Company would
have sufficient funds to repay or assets to satisfy such obligations,
including the obligations with respect to the Notes, in the event of an
acceleration of such other indebtedness. See "Description of the Notes" and
"Description of Other Indebtedness."
3
<PAGE>
In addition, the Restated Credit Agreement requires the Operating
Companies to maintain cash collateral accounts into which all available funds
are deposited and applied to service amounts outstanding thereunder on a daily
basis. If the Operating Companies were unable to borrow under the Restated
Credit Agreement, due to a default or due to the failure to meet any other
condition required to be met thereunder prior to borrowing (including any of
the representations and warranties contained therein not being correct before
and after giving effect to any such borrowing), the Operating Companies would
be left without an available source of cash.
Control by Principal Stockholders; Certain Anti-Takeover Effects.
Waxman Industries owns all of the outstanding shares of the Company's capital
stock. Approximately 18.2% of the outstanding shares of Waxman Industries'
Common Stock and 83.4% of the outstanding shares of Waxman Industries' Class B
common stock are beneficially owned by Melvin and Armond Waxman, brothers and
the Chairman of the Board and Co-Chief Executive Officer and President and Co-
Chief Executive Officer, respectively, of Waxman Industries (the "Waxman
Principal Stockholders"). These holdings represent 63.5% of the outstanding
voting power of Waxman Industries. Consequently, the Waxman Principal
Stockholders have sufficient voting power to elect the entire Board of
Directors of each of Waxman Industries and the Company and, in general, to
determine the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including any merger, consolidation, sale of
all or substantially all of each of Waxman Industries' and the Company's
respective assets or "going private" transactions, and to prevent or cause a
change in control of either Waxman Industries or the Company. In addition,
Messrs. Melvin and Armond Waxman may have an interest in pursuing
transactions, including transactions with affiliates, that in their judgment
could enhance the value of Waxman Industries' capital stock, even though such
transactions might involve risks to the holders of the Notes. In addition,
certain provisions in Waxman Industries' and the Company's respective
Certificates of Incorporation, By-laws and debt instruments, including the
Indenture, may be deemed to have the effect of discouraging a third party from
pursuing a non-negotiated takeover of either of Waxman Industries or the
Company and preventing certain changes in control.
Deficiency of Earnings to Fixed Charges. For fiscal 1995, fiscal
1993, as adjusted June 30, 1995 and March 31, 1996, actual, pro forma and as
adjusted the Company's earnings were insufficient to cover its fixed charges
by $4.3 million, $6.1 million, $5.3 million, $10.1 million, $1.4 million and
$12.8 million, respectively.
Foreign Sourcing. For fiscal 1995, products manufactured outside of
the United States accounted for approximately 27.8% of the total product
purchases made by the Company. Foreign sourcing involves a number of risks,
including the availability of letters of credit, maintenance of quality
standards, work stoppages, transportation delays and interruptions, political
and economic disruptions, foreign currency fluctuations, expropriation,
nationalization, the imposition of tariffs and import and export controls and
changes in governmental policies (including United States' policy toward the
foreign country where the products are produced), which could have an adverse
effect on the Operating Companies' business. The occurrence of certain of
these factors would delay or prevent the delivery of goods ordered by the
Operating Companies' customers, and such delay or inability to meet delivery
requirements could have an adverse effect on the Operating Companies' results
of operations and on the Operating Companies' relationships with their
customers. In addition, the loss of a foreign manufacturer could have a
short-term adverse effect on the Operating Companies' business until
alternative supply arrangements were secured.
Reliance on Key Customers. For fiscal 1995 and the nine months ended
March 31, 1996, Consumer Products' largest customer, Kmart and subsidiaries,
accounted for approximately 13.5% and 10.7%, respectively, of the Company's
total net sales and 43.6% and 39.8%, respectively, of Consumer Products' total
net sales. During the same periods, the Company's ten largest customers
accounted for approximately 24.1% and 20.3%, respectively, of the Company's
total net sales. The loss of, or a substantial decrease in, the business of
one or more of the Company's largest customers could have a material adverse
effect on the Company's operations. In addition, certain articles in the
financial press in the past year have questioned the financial condition of
Kmart, Consumer Products' largest customer. Furthermore, Kmart has stated that
it intends to sell its Builders Square business, which accounted for
approximately 24.7% and 24.5%, respectively, of Consumer Products' net sales
in fiscal 1995 and the nine months ended March 31, 1996, respectively. There
can be no assurance that any purchaser of Builders Square will continue to do
business with the Company or to the extent it does continue to do business
with the Company, as to the amount, terms or conditions of any sales by such
purchaser. Since the consummation of the Barnett Public Offering, the Company
and Waxman Industries rely primarily on Consumer Products for cash flow.
Consumer Products' customers include D-I-Y warehouse home centers, home
improvement centers, mass merchandisers, hardware stores and lumberyards.
Consumer Products may be adversely effected by
4
<PAGE>
prolonged economic downturns or significant declines in consumer spending.
There can be no assurance that any such prolonged economic downturn or
significant decline in consumer spending will not have a material adverse
impact on Consumer Products' business and its ability to generate cash flow.
Relationship with Waxman Industries. Waxman Industries and certain of
its subsidiaries are parties to an Intercorporate Agreement pursuant to which
Waxman Industries provides certain managerial, administrative and financial
services to such subsidiaries, including, among other things, financial and
treasury functions, tax planning and compliance and insurance and risk
management. The terms upon which these services are provided and the
compensation therefor were not determined in arms' length negotiations. The
subsidiaries who are a party to the Intercorporate Agreement have agreed to
indemnify Waxman Industries with respect to claims arising out of the
provision of these services, except with respect to losses resulting primarily
from Waxman Industries' willful misconduct, bad faith or gross negligence. In
addition, Waxman Industries and certain of its subsidiaries are parties to a
Tax Sharing Agreement. The Company is included in the consolidated group of
domestic corporations of which Waxman Industries is the common parent for
federal income tax purposes and the Company's tax liability is included in the
consolidated federal income tax liability of Waxman Industries. Under federal
law, the Company will be subject to liability for the consolidated federal
income tax liabilities of the consolidated group of which Waxman Industries is
the common parent for any taxable period during which the Company or a
subsidiary is a member of that consolidated group. Waxman Industries has
agreed, however, to indemnify the Company for such federal income tax
liability (and certain state and local tax liabilities) of Waxman Industries
or any of its other subsidiaries that the Company is actually required to pay.
Lack of Public Market. The New Notes are new securities for which
there currently is no market. While Citicorp Securities, Inc. has informed the
Company that it may make a market in the New Notes, it is not obligated to do
so, and any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the New Notes. The Company does not intend to apply for listing
of the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
5
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The selected consolidated historical financial data for the fiscal
years ended June 30, 1993, 1994 and 1995 and as of June 30, 1994 and 1995 are
derived from the audited Consolidated Financial Statements of the Company
included elsewhere herein. The selected consolidated historical financial data
for the fiscal years 1991 and 1992 are derived from the internal unaudited
consolidated financial statements of the Company which are not included
herein. The historical information as of and for the nine month periods ended
March 31, 1995 and 1996 is unaudited, but all adjustments made have been of a
normal recurring nature excluding an $11.0 million charge recorded by the
Consumer Products business described further in "Management's Discussion and
Analysis." The results for the nine months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the year ending June
30, 1996 or any other period. The selected financial data presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Prospectus.
The pro forma and as adjusted financial data has been prepared on the
basis of certain assumptions and estimates and may not be indicative of the
results that would have been achieved if the Private Exchange Offer and the
Barnett Public Offering had been effected on the dates indicated or that may
be achieved in the future. The pro forma financial data is presented assuming
the Company would continue to consolidate Barnett in its financial statements
upon the consummation of the Barnett Public Offering. The as adjusted
financial data is presented assuming the Company accounts for its remaining
interest in Barnett under the equity method of accounting, see "Recent
Developments."
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30, Nine Months Ended March 31,
----------------------------------------------------------- ----------------------------------------
Pro Forma As Adjusted Pro Forma As Adjusted
1991 1992 1993 1994 1995 1995(1) 1995(2) 1995 1996 1996(1) 1996(2)
------ ------ ------ ------ ------ ------- ------- ----- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data(3):
Net sales
Barnett $62,482$ 72,106$ 82,875$ 95,225$ 109,107$109,107 $ -- $ 81,091 $ 93,399 $ 93,399 $ --
Consumer Products 68,749 70,040 67,480 70,707 71,971 71,971 72,221 57,045 47,113 47,113 47,338
WOC 46,563 47,090 44,675 43,131 46,884 46,884 47,002 35,798 33,293 33,293 33,330
TWI 697 1,313 3,413 4,508 4,342 4,342 15,292 3,227 1,672 1,672 10,475
------------------------------------------------- ------- ------ -------------------------------
Total net sales 178,491 190,549 198,443 213,571 232,304 232,304 134,515$177,161 175,477 175,477 91,143
Cost of sales 116,652 122,971 133,177 139,262 152,368 152,368 91,871 115,559 123,239 123,239 70,014
--------------------------------------- -------- ------- ------- --------- ------- -------
Gross profit 61,839 67,578 65,266 74,309 79,936 79,936 42,644 61,602 52,238 52,238 21,129
Operating expenses 44,751 46,750 50,526 53,321 58,590 58,590 34,818 43,787 46,207 46,207 26,622
Corporate charge 3,196 3,860 3,946 4,217 3,891 4,091 3,891 3,164 2,521 2,621 2,521
Restructuring and other
nonrecurring charges(4) -- -- 3,543 -- 2,779 2,779 2,779 -- -- -- --
Operating income
13,892 16,968 7,251 16,771 14,676 14,476 1,156 14,651 3,510 3,410 (8,014)
Interest expense 8,952 13,908 13,321 13,790 18,952 6,452 6,452 13,735 13,567 4,794 4,794
----------------------------------------------- -------- ------ -------- ------- ---------
Income (loss) from continuing
operations before
provision (benefit)
for income taxes, minority
interest and cumulative effect
of accounting change 4,940 3,060 (6,070) 2,981 (4,276) 8,024 (5,296) 916 (10,057) (1,384) (12,808)
Provision (benefit) for 2,100 1,500 (1,600) 1,500 (1,100) 3,403 (1,517) 550 (2,990) 186 (4,014)
income taxes ------ ------- ------- ----- ------- ------ ------- --- ------- ------- -------
Income (loss) from
continuing operations
before minority interest
and cumulative effect of
accounting change 2,840 1,560 (4,470) 1,481 (3,176) 4,621 (3,779) 366 (7,067) (1,570) (8,794)
------ ------- ------- ----- ------- ------ ------- --- ------- ------- -------
Minority interest (4,208) 4,192 (3,619) 3,605
------- ---------
Income (loss) from
continuing operations
before cumulative
effect of
accounting change 2,840 1,560 (4,470) 1,481 (3,176) 412 412 366 (7,067) (5,189) (5,189)
(Loss) on and reversal of loss
on disposal of Consumer
Products, net of tax -- -- -- -- (6,600) (6,600) (6,600) -- 6,600 6,660 6,600
Income (loss) before
cumulative effect of change
in accounting
2,840 1,560 (4,470) 1,481 (9,776) (6,188) (6,188) 366 (467) 1,411 1,411
Cumulative effect of
change in accounting
for distribution center
start-up and catalog
development costs, net
of tax benefit(5) -- -- 1,266 -- -- -- -- -- -- -- --
------- ----- ------- ------ ------ ------ -------- ------- -------- ------- ------
Net income (loss) 2,840 1,560 (5,736) 1,481 (9,776) (6,188) (6,188) 366 (467) 1,411 1,411
====== ===== ======= ====== ====== ====== ======== ======= ======== ======= ======
7
<PAGE>
Year Ended June 30, Nine Months Ended March 31,
------------------------------------------------------ -----------------------------------------------
Pro Forma As Adjusted(7)
1991 1992 1993 1994 1995 1995 1996 1996(6) 1996
------ ------ ------ ------ ------ ------- ------ --------- --------------
Balance Sheet Data
(at end of period):
Working Capital $75,667 $82,146 $87,745 $94,611 $78,530 $89,253 $69,942 $76,881 $46,979
Total Assets 140,223 165,492 156,658 169,634 157,069 171,727 154,162 147,348 115,014
Total Long-Term 1,115 1,182 1,350 53,372 54,693 55,108 49,944 51,317 51,317
Debt, Excluding
Push-Down Debt
Push-Down Debt(8) 71,750 110,201 110,313 87,425 87,536 87,508 81,897 -- --
Stockholder's Equity 47,041 19,781 19,323 1,210 (17,725) (5,892) (15,516) 44,945 44,945
Year Ended June 30, Nine Months Ended March 31,
-------------------------------------------------------------------- ---------------------------------------
Pro As
Forma(6) Adjusted(7) Pro Forma As Adjusted(7)
1991 1992 1993 1994 1995 1995 1995 1995 1996 1996(6) 1996
------ ------ ------ ------ ------ ---- ----- ------- ------ ------- ----
Other Data:
Ratio of earnings
to fixed
charges (9)
1.5x 1.2x -- 1.2x -- 2.0x -- 1.1x -- -- --
EBITDA(10)
Barnett 7,910 9,101 9,979 11,200 13,241 14,903 -- 10,273 11,722 12,789 ----
Other subsidiaries
10,244 13,141 9,653 11,863 10,817 8,955 8,955 9,448 7,766 6,599 6,599
------ ------ ----- ------ ------ ----- ----- ----- ----- ----- -----
Total 18,154 22,242 19,632 23,063 24,058 23,858 8,955 19,721 19,488 19,388 6,599
====== ====== ====== ====== ====== ====== ===== ====== ====== ====== =====
Depreciation and
Amortization 4,462 5,562 8,401 7,108 8,278 6,723 5,140 6,077 6,378 5,538 4,172
Capital
Expenditures, net 736 2,732 1,396 3,338 3,995 3,995 1,661 2,527 1,877 1,877 292
Cash Interest
Expense(11) 112 152 182 722 5,974 6,332 6,332 4,149 4,568 4,734 4,734
Ratio of EBITDA to
Interest Expense 2.03x 1.60x 1.47x 1.67x 1.27x 3.70x 1.39x 1.44x 1.44x 4.04x 1.38x
</TABLE>
- --------------
(1) The pro forma income statement data presents the consummation of the
Private Exchange Offer and the consummation of the Barnett Public
Offering and the application of the net proceeds therefrom to repay
certain indebtedness as described in "Recent Developments" as if each had
occurred as of the beginning of the period and assuming that the Company
would continue to consolidate Barnett in its financial statements,
thereby resulting in a decrease in interest expense of $12.5 million and
$8.8 million for the fiscal year ended June 30, 1995 and the nine months
ended March 31, 1996, respectively. The pro forma income statement data
does not include (a) the gain to be realized upon the sale of Barnett's
common stock by the Company of approximately $39.0 million, net of
applicable income taxes of $26.0 million, and (b) the extraordinary
charge of $2.8 million, net of applicable tax benefit of $1.9 million,
that will be incurred by the Company as a result of the acceleration of
unamortized debt issuance costs and the premium on the Senior Secured
Notes. Barnett will also incur an extraordinary charge of $724,000, net
of applicable income tax benefit of $426,000. The Company will incur
49.9%, or $362,000, of Barnett's extraordinary charge.
The gain and extraordinary charges will be realized in the quarter ending
June 30, 1996.
(2) The as adjusted income statement data presents the pro forma data
described in footnote (1) above assuming the Company accounts for its
remaining interest in Barnett under the equity method of accounting. For
purposes of the restrictive covenants in the Indenture, Barnett will not
constitute a "Subsidiary." Accordingly, for purposes of the Indenture,
the Company will account for Barnett under the equity method of
accounting. The as adjusted income statement data includes sales to
Barnett of $11.3 million and $9.1 million for the fiscal year ended June
30, 1995 and the nine months ended March 31, 1996, respectively.
(3) Reflects the acquisition by Waxman Industries of WAMI in November 1990,
which was accounted for as a purchase. Earnings per share data is not
presented and is not meaningful, as the Company is a wholly-owned
subsidiary of Waxman Industries.
8
<PAGE>
(4) During fiscal 1993, the Company recorded a $3.5 million restructuring
charge which included $2.0 million representing the estimated loss to be
incurred upon the proposed disposal of two businesses and $1.5 million
representing costs incurred to consolidate administrative functions and
transfer two of Consumer Products' domestic packaging facilities to
Mexico. During fiscal 1995, the Company incurred $2.8 million in
warehouse closure costs as Consumer Products' distribution network was
downsized from four locations to three. See Note 4 to the Company's
Consolidated Financial Statements for further discussion.
(5) See Note 3 to the consolidated financial statements for a discussion
regarding the cumulative effect of change in accounting of $1.3 million,
net of applicable tax benefit of $0.8 million, in fiscal 1993.
(6) The pro forma balance sheet data presents the consummation of the Private
Exchange Offer and the consummation of the Barnett Public Offering and
the application of the net proceeds therefrom to repay certain
indebtedness as described in "Recent Developments." The pro forma balance
sheet data assumes the Company will continue to consolidate Barnett in
its financial statements. The pro forma balance sheet data includes the
effect on retained earnings for the gain on sale of Barnett's common
stock and extraordinary charges described in footnote (1) above.
(7) The as adjusted balance sheet data presents the pro forma balance sheet
described in footnote (6) above assuming the Company accounts for its
remaining interest in Barnett under the equity method of accounting. For
purposes of the restrictive covenants in the Indenture, the Company will
account for Barnett under the equity method of accounting.
(8) Pursuant to certain Securities and Exchange Commission rules, the
Company's consolidated financial statements have been adjusted to reflect
the push-down of certain indebtedness from Waxman Industries comprised of
(a) the debt to be retired upon consummation of the Private Exchange
Offer and (b) the debt which is guaranteed by the Company and which
management intends to retire from a portion of the proceeds from the
Barnett Public Offering. Refer to Note 5 to the consolidated financial
statements for further description of the push-down debt.
(9) For purposes of calculating this ratio, "earnings" consist of income
(loss) from continuing operations before provision (benefit) for income
taxes, minority interest and cumulative effect of accounting change and
fixed charges, and "fixed charges" consist of interest expense, including
the interest portion of rental obligations on capitalized and operating
leases (which is deemed by the Company to be one-third of all of its
rental obligations with respect to operating leases). For fiscal 1993,
fiscal 1995, as adjusted June 30, 1995 and March 31, 1996, actual, pro
forma and as adjusted earnings were insufficient to cover fixed charges
by $6.1 million, $4.3 million, $5.3 million, $10.1 million, $1.4 million
and $12.8 million , respectively.
(10) EBITDA represents income (loss) from continuing operations before
provision (benefit) for income taxes, minority interest and cumulative
effect of accounting change plus interest expense, nonrecurring charges
(which were primarily non-cash), depreciation and amortization. The
Company has included EBITDA data (which is not a measure of financial
performance under generally accepted accounting principles) because such
data is used by certain investors to measure the ability to service debt.
EBITDA is not presented herein as an alternative to net income, as an
indicator of the Company's operating performance or cash flows, or as a
measure of liquidity, but rather to provide additional information
relating to the Company's ability to service its debt. Fiscal 1993 EBITDA
has been adjusted to reflect the nonrecurring inventory adjustments of
$1.0 million (included in cost of sales) and the nine months ended March
31, 1995, EBITDA has been adjusted to reflect the write-down of Consumer
Products assets adjustments of $10.5 million (as discussed in Notes 2 and
12 to the consolidated financial statements).
(11) Cash interest expense reflects the Company's interest expense less
push-down interest expense and the amortization of debt issuance costs.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Selected Financial Data and the Company's Consolidated Financial
Statements, including the notes thereto, appearing elsewhere herein.
GENERAL
The Company operates in a single business segment -- the distribution
of plumbing, electrical and hardware products. The Company's business is
conducted primarily through Consumer Products and Barnett.
As previously announced by Waxman Industries, in connection with
management's review of Consumer Products as a continuing operation, the
Company recorded an $11.0 million charge in the quarter ended March 31, 1996,
primarily for reductions in the carrying value of certain inventories and
other capitalized assets. As the Company continues its reevaluation of the
strategic direction of Consumer Products as a continuing operation, charges
may be recorded in the fourth quarter to restructure the business, including
eliminating certain product lines, optimizing product offerings and
reexamining certain warehousing costs. The Company is also assessing certain
accounting policies for capitalized costs at Consumer Products. In addition,
the Company will recognize a charge in the fourth quarter for the impairment
of long-lived assets at Consumer Products and other certain smaller divisions.
On February 1, 1996, Barnett filed a registration statement with the
Commission with respect to an initial public offering (the "Barnett Public
Offering") of its common stock (the "Barnett Common Stock"). On March 28,
1996, the registration statement with respect to the Barnett Public Offering
was declared effective and on April 3, 1996, the Barnett Public Offering was
consummated. In such offering, 7,207,200 shares, representing approximately
55.1% of the Barnett Common Stock, were sold in the aggregate by Barnett and
the Company at an initial public offering price per share of $14.00, resulting
in aggregate net proceeds of $93.4 million. As of May 8, 1996, as a result of
the Company's ownership of certain convertible non-voting preferred stock of
Barnett, the Company beneficially owns approximately 49.9% of the Barnett
Common Stock and owns approximately a 54% economic interest of the capital
stock of Barnett. See "Recent Developments."
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items reflected in the
Company's Consolidated Statements of Income as a percentage of net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
Nine Months Ended
Year Ended June 30, March 31,
---------------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of sales 67.1% 65.2% 65.6% 65.2% 70.2%
Gross profit 32.9% 34.8% 34.4% 34.8% 29.8%
Operating expenses 25.5% 25.0% 25.2% 24.7% 26.3%
Corporate charge 2.0% 2.0% 1.7% 1.8% 1.4%
Restructuring and other non-
recurring charges 1.8% 0.0% 1.2% 0.0% 0.0%
Operating income 3.7% 7.9% 6.3% 8.3% 2.0%
Interest expense 6.7% 6.5% 8.2% 7.8% 7.8%
Income (loss) from
continuing operations before
provision (benefit) for
income taxes and cumulative
effect of accounting change (3.1%) 1.4% (1.8%) 0.5% (5.7%)
Provision (benefit) for income
taxes (0.8%) 0.7% (0.5%) 0.3% (1.7%)
Income (loss) from continuing
operations before cumulative
effect of accounting change (2.3%) 0.7% (1.4%) 0.2% (4.0%)
(Loss) on and reversal of loss
on disposal of Consumer
Products, net of tax 0.0% 0.0% (2.8%) 0.0% 3.7%
Income (loss) before
cumulative effect of change
in accounting (2.3%) 0.7% (4.2%) 0.2% (0.3%)
Cumulative effect of change in
accounting for distribution
center start-up and catalog
development costs, net of tax
benefit 0.6% 0.0% 0.0% 0.0% (0.0%)
Net income (loss) (2.9%) 0.7% (4.2%) 0.2% (0.3%)
</TABLE>
11
<PAGE>
NINE MONTHS ENDED MARCH 31, 1995 VS. NINE MONTHS ENDED MARCH 31, 1996
NET SALES
The Company's net sales decreased $1.7 million, or 1.1%, to $175.5
million in the nine months ended March 31, 1996 from $177.2 million in the
corresponding prior year period.
Barnett's net sales increased $12.3 million, or 15.2%, to $93.4 million in the
nine months ended March 31, 1996 from $81.1 million in the corresponding prior
year period. Approximately 62.1% of the increase in Barnett's net sales is
attributable to the telesales operations, primarily resulting from increased
sales by existing telesalespersons and the addition of 15 telesalespersons
compared to the prior year period. Contributing to the overall increase in net
sales was a net increase of 100 in the total number of products offered by
Barnett, which generated approximately $4.6 million of the net sales increase,
as well as an increase in active customers to 41,000 from 37,000 which
accounted for approximately $3.5 million of the net sales increase during the
nine month period.
Approximately $ 2.1 million of Barnett's net sales increase is attributable to
Barnett's inclusion of direct sales in net sales commencing July 1, 1995.
While these products are shipped directly to the customer from the original
equipment manufacturer, Barnett provides services to the customer and supplier
including marketing, technical assistance and credit and collection
activities. Prior to July 1, 1995, direct sales were included in the financial
statements as a net reduction to cost of goods sold.
Consumer Products' net sales decreased $9.9 million, or 17.4% , to $47.1
million in the nine months ended March 31, 1996 from $57.0 million in the
corresponding prior year period. The decrease in Consumer Products' net sales
is primarily due to the weakening retail environment and the prior period net
sales being positively impacted by the expansion of Consumer Products'
business with several of its large customers.
WOC's and TWI's net sales decreased $4.1 million, or 10.4 %, to $35.0 million
in the nine months ended March 31, 1996 from $39.0 million in the
corresponding prior year period. This decrease is primarily the result of
changes in volume.
GROSS PROFIT
Consolidated gross profit margin decreased to 29.8% of net sales for the nine
months ended March 31, 1996 from 34.9% of net sales in the prior year. The
decrease is primarily attributable to the Consumer Products business as a
result of additional cost of goods sold charges of $7.5 million recorded in
the current period related to certain inventory carrying costs, which are
included in the $11.0 million charge described above. Also affecting the gross
profit margin decreases for Consumer Products was a strong sales mix from the
expansion of the business in fiscal 1995 and to a lesser extent, increased
supplier costs in the current period. Barnett's gross profit decreased to
33.3% for the nine months ended March 31, 1996 from 34.1% for the same period
last year as a result of the increased revenues from the above mentioned
direct ship programs. Excluding the affect of the direct shipments, Barnett's
gross profit margin decreased to 33.3% from 33.6% in the prior year period.
The Company's other operations also experienced small decreases in gross
profit margin partially offset by continued improved margins at a Mexican
subsidiary.
OPERATING EXPENSES
Operating expenses increased by $2.4 million, or 5.5%, to $46.2 million for
the nine months ended March 31, 1996 from $43.8 million for the comparable
prior year period. As a percent of net sales, these expenses represented 26.3
% in the first nine months of 1996 compared to 24.7% in the first nine months
of 1995. The increase in operating expenses is primarily the result of the
current period charges recorded at the Consumer Products business of $3.0
million, which is included in the $11.0 million charge described above,
partially offset by decreases in the Company's other operations.
12
<PAGE>
CORPORATE CHARGE
Corporate charge decreased to $2.5 million, or 1.4% of net sales, for the nine
months ended March 31, 1996 compared to $3.2 million, or 1.8% of net sales,
for the nine months ended March 31, 1995. Corporate charges are allocations of
expenses to the Company that Waxman Industries incurs to support its corporate
activities.
INTEREST EXPENSE
Interest expense decreased to $13.6 million for the nine months ended March
31, 1996 from $13.7 million in the corresponding prior year period. Average
borrowings decreased from $147.5 million to $144.1 million between periods and
the weighted average interest rate increased from 12.4% to 12.6% during the
same period.
INCOME TAXES
The benefit for income taxes was $3.0 million for the nine months ended March
31, 1996 compared to a provision of $0.6 million in the prior year period. The
effective tax rate was 29.7 % for the nine months ended March 31, 1996
compared to 60.0 % for the nine months ended March 31, 1995. The substantially
higher than statutory rate was the result of nominal pre-tax earnings.
YEAR ENDED JUNE 30, 1994 VS. YEAR ENDED JUNE 30, 1995
NET SALES
The Company's net sales increased $18.7 million, or 8.8%, to $232.3 million in
1995 from $213.6 million in 1994.
Barnett's net sales increased $13.9 million, or 14.6%, to $109.1 million in
1995 from $95.2 million in 1994. Approximately 91.8% of the increase in
Barnett's net sales is attributable to the telesales operations, primarily
resulting from increased sales by existing telesalespersons and the addition
of 13 telesalespersons in 1995. Contributing to the overall increase in net
sales were a net increase of 200 in the total number of products offered by
Barnett which generated approximately $6.9 million of additional net sales and
an increase of active customers to 38,000 from 36,000 which accounted for
approximately $3.8 million of the net sales increase. The increased net sales
can also be partially attributed to Barnett's other successful marketing
programs, including the introduction of a new catalog in January 1995 directed
to its hardware store customers, coupled with new merchandising strategics
which offer comprehensive customer services.
Consumer Products' net sales increased $1.3 million, or 1.8%, to $72.0 million
in 1995 from $70.7 million in 1994. The increase in Consumer Products' net
sales was primarily the result of the expansion of Consumer Products' business
with several of its large customers. The opening orders for this additional
business, which totaled approximately $2.5 million, were shipped during the
first fiscal quarter. This increase was offset due to the consolidation of two
regional do-it-yourself retailers which resulted in the loss of a customer.
WOC's and TWI's net sales increased $3.6 million, or 7.5%, to $51.2 million in
1995 from $47.6 million in 1994. This increase is primarily the result of
changes in volume and higher sales prices associated with copper products.
GROSS PROFIT
Gross profit increased from $74.3 million in 1994 to $79.9 million in 1995.
Gross profit margin decreased from 34.8% for 1994 to 34.4% for 1995. Barnett's
gross profit margin was favorably effected by the increased sales of private
label products, which generally carry a higher gross profit margin, and which
increased to 26.6% of Barnett's net sales during 1995 compared to 26.4% of
Barnett's net sales in the prior year period. The favorable effect of
increased sales of private label products was offset by increased costs of
branded products.
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<PAGE>
OPERATING EXPENSES
Operating expenses increased by $5.3 million, or 9.9%, to $58.6 million for
1995 from $53.3 million for the prior year period. The increase in operating
expenses as a percentage of net sales to 25.2% in 1995 compared to 25.0% in
1994 was principally due to increased selling and occupancy costs, which were
partially offset by the leveraging of fixed costs, primarily administrative
expenses, over a larger sales base. Operating expenses also increased due to
Barnett's August 1995 relocation of its telesales operations into a new 9,000
square foot "call center" and the expansion or relocation of several of
Barnett's distribution centers.
CORPORATE CHARGE
Corporate charge decreased to $3.9 million, or 1.7% of net sales, for 1995
compared to $4.2 million, or 2.0% of net sales, for 1994. Corporate charges
are allocations of expenses to the Company that Waxman Industries incurs to
support its corporate activities.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the 1995 fourth quarter, the Company downsized Consumer Products
distribution network from four locations to three and as a result incurred
warehouse closure costs of $2.8 million, which incudes $0.6 million of future
costs to be incurred relating to such closure.
INTEREST EXPENSE
Interest expense increased to $19.0 million for 1995 from $13.8 million in the
prior year period. Average borrowings increased from $116.6 million to $148.0
million between periods and the weighted average interest rate increased from
11.8% to 12.8% during the same period. The increase in average borrowing
outstanding is due primarily to the advances to Waxman Industries.
INCOME TAXES
The benefit for income taxes was $1.1 million for 1995 compared to a provision
for income taxes of $1.5 million in the prior year. The effective tax rate was
25.7% in 1995 compared to 50.3% in 1994. Differences between the effective tax
rate and the statutory rate is primarily a result of state and foreign taxes
and goodwill amortization which is not deductible for tax purposes.
LOSS ON DISPOSAL
The Company recognized a loss on disposal of Consumer Products of $6.6
million, net of applicable income tax benefit of $4.4 million in the 1995
fourth quarter.
As discussed above, as a result of the consummation of the Barnett Public
Offering on April 3, 1996, the Company ceased its efforts to sell the Consumer
Products business. Therefore, the loss on disposal of $6.6 million, net of
applicable tax benefit of $4.4 million, recorded as of June 30, 1995 was
reversed in the quarter ended March 31, 1996.
YEAR ENDED JUNE 30, 1993 VS. YEAR ENDED JUNE 30, 1994
NET SALES
The Company's net sales increased $15.1 million, or 7.6%, to $213.6 million in
1994 from $198.4 million in 1993.
Barnett's net sales increased $12.4 million, or 14.9%, to $95.2 million in
1994 from $82.9 million in 1993. Virtually all of the increase in Barnett's
net sales is attributable to the telesales operations, primarily resulting
from increased sales by existing telesalespersons and the addition of 10
telesalespersons in 1994. Contributing to the overall increase in net
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<PAGE>
sales were a net increase of 800 in the total number of products offered by
Barnett in 1994, an increase of active customers to 36,000 from 33,000 during
the same period and the opening of two additional distribution centers.
Consumer Products' net sales increased $3.2 million, or 4.8%, to $70.7 million
in 1994 from $67.5 million in 1995. The increase in Consumer Products' net
sales was primarily the result of the sale of additional existing product
lines to several of its existing customers.
WOC and TWI's net sales decreased $0.4 million, or 0.9%, to $47.6 million in
1994 from $48.1 million in 1993. This decrease is primarily the result of
changes in volume.
GROSS PROFIT
Gross profit increased from $65.3 million in 1993 to $74.3 million in 1994.
Gross profit margin increased from 32.9% for 1993 to 34.8% for 1994. The
increase in gross profit margin was primarily due to the increase of sales to
new targeted customer segments and increased sales of higher margin
proprietary branded product. Barnett's gross profit margin was favorably
effected by the increased sales of private label products, which generally
carry a higher gross profit margin, and which increased to 26.4% of Barnett's
net sales during in 1994 compared to 26.2% of Barnett's net sales in the prior
year. Also, gross profit margin was favorably impacted by an increase in the
percentage of products purchased from foreign sources. Such products typically
generate higher gross profit margins than products purchased domestically.
OPERATING EXPENSES
Operating expenses increased by $2.8 million, or 5.5%, to $53.3 million for
1994 from $50.5 million for the prior year period. The decrease in operating
expenses as a percentage of net sales to 25.0% in 1994 compared to 25.5% in
1993 was principally due to Barnett's development costs associated with the
new catalog of maintenance products introduced in 1993 and to the opening of
two distribution centers in 1994 compared to the opening of three additional
distribution centers in 1993. Operating expenses increased primarily related
to increased warehouse and selling and advertising costs.
CORPORATE CHARGE
Corporate charge increased to $4.2 million, or 2.0% of net sales, for 1994
compared to $3.9 million, or 2.0% of net sales, for 1993. Corporate charges
are allocations of expenses to the Company that Waxman Industries incurs to
support its corporate activities.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
In 1993, the Company recorded a $3.5 million restructuring charge which
included $2.0 million representing the estimated loss to be incurred upon the
proposed disposal of two businesses and $1.5 million representing costs
incurred to consolidate administrative functions and transfer two of Consumer
Products' domestic packaging facilities to Mexico.
INTEREST EXPENSE
Interest expense increased to $13.8 million for 1994 from $13.3 million in the
prior year period. Average borrowings increased from $113.0 million to $116.6
million between period and the weighted average interest rate remained
constant at 11.8% during the same period. The increase in average borrowing
outstanding is due primarily to the advances to Waxman Industries.
INCOME TAXES
The provision for income taxes was $1.5 million for 1994 compared to a benefit
for income taxes of $1.6 million in the prior year. The effective tax rate was
50.3% in 1994 compared to 26.3% in 1993. Differences between the effective
15
<PAGE>
tax rate and the statutory rate is primarily a result of state and foreign
taxes and goodwill amortization which is not deductible for tax purposes.
CHANGE IN ACCOUNTING
Effective July 1, 1992, the Company accelerated is amortization of certain
distribution center start-up costs and catalog development costs. The Company
had historically amortized such costs over a period not to exceed five years
which, in management's opinion, represented the period over which economic
benefits were received. The acceleration of amortization was made to conform
with prevailing industry practice. By accelerating amortization, certain costs
associated with the opening of new distribution center operations are
amortized over a period of twelve months commencing the month in which the
distribution center opens. Costs associated with the development and
introduction of new catalogs are amortized over the life of the catalog, not
to exceed a period of one year. The cumulative effect of this change on prior
years totaled $1.3 million, net of applicable income tax benefit of $0.8
million, and is reported separately in the statement of income for 1993. As
discussed elsewhere herein, in connection with the reevaluation of the
strategic direction of Consumer Products, the Company is also assessing
certain accounting policies for capitalized costs at Consumer Products and, in
connection therewith, may determine to adopt a shorter amortization period for
such capitalized costs in the future.
QUARTERLY RESULTS
The following table sets forth selected summary unaudited quarterly
financial information for the last quarter in 1994, each quarter in 1995 and
the first three quarters of 1996. In the opinion of management, such
information has been prepared on the same basis as the financial statements
appearing elsewhere in this Prospectus and reflects all necessary adjustments
(consisting of only normal recurring adjustments) for a fair presentation of
such unaudited quarterly results when read in conjunction with the financial
statements and the notes thereto. The operating results for any quarter are
not necessarily indicative of results for any future period and there can be
no assurance that any trends reflected in such results will continue in the
future.
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1995 Fiscal 1996
----------- ---------------------------------------------- --------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1994 1994 1994 1995 1995 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $54,867 $59,443 $58,951 $58,767 $55,143 $57,589 $59,345 $58,543
Gross profit 19,036 20,888 20,432 20,282 18,334 19,577 20,230 12,431
Operating income 4,403 5,218 4,723 4,710 25 4,567 4,961 (6,018)
Income (loss) from
continuing operations
before cumulative effect of 143 452 63 (149) (3,543) (85) 176 (7,158)
change in accounting
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
On February 1, 1996, Barnett filed a registration statement with the
Securities and Exchange Commission with respect to an initial public offering
of its common stock. On March 28, 1996, the registration statement with
respect
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<PAGE>
to the Barnett Public Offering was declared effective and on April 3, 1996,
the Barnett Public Offering was consummated. In such offering, 7,207,200
shares, representing approximately 55.1% of the Barnett Common Stock, were
sold in the aggregate by Barnett and the Company at an initial public offering
price per share of $14.00, resulting in aggregate net proceeds of $93.4
million. As of May 8, 1996, as a result of the Company's ownership of certain
convertible non-voting preferred stock of Barnett, the Company beneficially
owns approximately 49.9% of the Barnett Common Stock and approximately a 54%
economic interest of the capital stock of Barnett.
Of the $48.5 million of net proceeds received by Barnett in the Barnett Public
Offering, Barnett used (i) approximately $23.0 million to repay all of the
outstanding indebtedness borrowed by it under the Operating Companies
Revolving Credit Facility, (ii) $22.0 million to pay a dividend evidenced by a
note payable to the Company, which funds were in turn distributed to Waxman
Industries and (iii) $3.5 million for working capital. The $44.9 million of
net proceeds received by the Company from the Barnett Public Offering,
together with payment from Barnett of the $22.0 million note payable described
above, were, or will be, applied primarily to repay debt including (i) all of
the $39.2 million principal amount of the Waxman Industries' Senior Secured
Notes plus accrued interest and redemption premium of approximately $1.7
million, thereby eliminating the mandatory sinking fund requirements relating
to the Senior Secured Notes which were scheduled to commence in September 1996
and (ii) approximately $5.0 million of the $10.0 million outstanding
indebtedness and accrued interest under the Term Loan. The remaining net
proceeds received by the Company (approximately $21.0 million) are intended to
be used to (i) reduce additional outstanding indebtedness borrowed by Consumer
Products or WOC under the Restated Credit Agreement and/or (ii) retire Waxman
Industries' Deferred Coupon Notes and/or Exchange Notes and/or (iii) reinvest
in Consumer Products' and/or WOC's businesses.
The Company's business strategy includes reducing its leverage by the sale of
selected assets and to refinance its remaining indebtedness whenever possible.
In addition, the Company believes that the Barnett Public Offering will be
beneficial to the growth and earnings potential of Barnett. In connection with
the Barnett Public Offering and pursuant to the requirements of certain debt
agreements, if the Company does not utilize the proceeds from the Barnett
Public Offering pursuant to the terms described above, the Company will be
required to repay its outstanding obligations under the Restated Credit
Agreement.
On April 3, 1996, the Company consummated the previously announced offer to
exchange $48.75 million principal amount of Exchange Notes for a like amount
of Waxman Industries' outstanding Senior Subordinated Notes and in connection
therewith solicited consents to certain amendments to the indenture pursuant
to which the Senior Subordinated Notes were issued. Approximately $43.03
million of Senior Subordinated Notes were exchanged. The Exchange Notes were
not registered under the Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent registration or an applicable
exemption from such registration requirements. The amendments to the Senior
Subordinated Note indenture eliminated virtually all of the restrictive
covenants and events of defaults previously contained in such indenture. The
Exchange Offer decreased the Company's cash interest burden and extended the
maturity of the Senior Subordinated Notes exchanged by several years.
In connection with the Barnett Public Offering, the Company entered into the
Restated Credit Agreement to provide for, among other things, the Restated
Term Loans and a release of Barnett from such lending arrangements. As a
result of the limited duration of the Restated Credit Agreement, Waxman
Industries is currently negotiating with respect to a refinancing of such
credit facility. Although Waxman Industries believes, based on discussions to
date, that it will be able to refinance the Restated Credit Agreement before
its expiration, there can be no assurance that it will be able to do so or as
to the terms of any such refinancing it will be able to obtain.
Revolving credit advances under the Restated Credit Agreement are subject to
borrowing base formulas and bear interest at (i) the per annum rate of 1.5%
plus the highest of (a) the prime rate of Citibank, N.A. or (b) the federal
funds rate plus 0.5% and a formula with respect to three month certificates of
deposit of major United States money market banks or (ii) LIBOR plus 3.0%. The
Restated Credit Agreement includes a letter of credit subfacility of $4.0
million. Restated Term Loans bear interest at a rate per annum equal to 2.0%
over the interest rate applicable to revolving credit advances under the
Restated Credit Agreement (including the LIBOR option). Borrowings under the
Restated Credit Agreement are secured by the accounts receivable, inventory,
certain general intangibles and unencumbered fixed assets of Consumer Products
and WOC (the "Borrowers") and 65% of the capital stock of one subsidiary of
TWI and 100% of the capital stock of another such subsidiary. In addition,
Restated Term Loans are also secured by a pledge of 500,000
17
<PAGE>
shares of Barnett Common Stock owned by the Company. The Restated Credit
Agreement requires the Borrowers to maintain cash collateral accounts into
which all available funds are deposited and applied to service the facility on
a daily basis. The Restated Credit Agreement prevents dividends and
distributions by the Borrowers except in certain limited instances including,
so long as there is no Default or Event of Default, and the Company is in
compliance with certain financial covenants, the payment of interest on the
Subordinated Notes and Exchange Notes, and will contain customary negative,
affirmative and financial covenants and conditions.
The Restated Credit Agreement contains the events of default contained in the
Operating Companies Revolving Credit Facility, which include the following:
(i) any Borrower shall fail to make any payment of principal or interest or
any other amount due under the agreements related to the Restated Credit
Agreement or fail to perform any covenant (after the expiration of any
applicable grace period) thereunder, or any representation or warranty made in
connection therewith shall prove to have been incorrect in any material
respect when made or deemed made; (ii) the Company or any of its subsidiaries
shall fail to pay any indebtedness having a principal amount of $5,000,000 or
more; or any other event shall occur or condition shall exist under any
Agreement or instrument relating to any such indebtedness, if the effect of
such event or condition is to accelerate, or to permit the acceleration of
(after the expiration of any applicable grace period), the maturity of such
indebtedness; or any such indebtedness shall become or be declared to be due
and payable, or required to be repaid (other than by a regularly scheduled
required prepayment), or the Company or any of its subsidiaries shall be
required to repurchase or offer to repurchase such indebtedness, prior to the
stated maturity thereof; (iii) certain events of bankruptcy with respect to
the Company or any of its subsidiaries; (iv) there shall occur any Change of
Control (as defined in the Restated Credit Agreement) and (v) there shall
occur a Material Adverse Effect (as defined in the Restated Credit Agreement)
or an event which would have a Material Adverse Effect (as defined in the
Restated Credit Agreement).
As of April 3, 1996 availability under the Restated Credit Agreement totaled
approximately $20.9 million.
Since the consummation of the Barnett Public Offering, the cash flow generated
by such operations is no longer available to the Company. The Company relies
primarily on Consumer Products for cash flow. Consumer Products' customers
include D-I-Y warehouse home centers, home improvement centers, mass
merchandisers, hardware stores and lumberyards. Consumer Products may be
adversely effected by prolonged economic downturns or significant declines in
consumer spending. There can be no assurance that any such prolonged economic
downturn or significant decline in consumer spending will not have a material
adverse impact on the Consumer Products' business and its ability to generate
cash flow.
The Company is currently continuing its review of the strategic direction of
the Consumer Products business as a continuing operation and charges may be
recorded in the fourth quarter to restructure the business, including
eliminating certain product lines, optimizing product offerings and
reexamining certain warehousing costs. The Company is also assessing certain
accounting policies for capitalized costs at Consumer Products. The Company
will recognize a charge in the fourth quarter for the impairment of long-lived
assets at Consumer Products and other certain smaller divisions. Although the
Company believes that the reevaluation of Consumer Products' strategic
direction will improve its earnings potential, there can be no assurance that
Consumer Products' results of operations will improve over time.
The Company will also record an extraordinary charge in the fourth quarter
related to the deferred financing costs attributed to indebtedness repaid from
the net proceeds of the Barnett Public Offering, as well as a substantial gain
from the Barnett Public Offering.
The Company expects to recognize taxable income for the year ending June 30,
1996 as a result of the gain from the Barnett Public Offering. Any taxable
income recognized in the fourth quarter will be substantially offset by the
current net operating loss carry forwards. Also as a result of the Barnett
Public Offering, Barnett will no longer be included in the Company's
consolidated tax return. Therefore, the Company's remaining net operating loss
carry forwards will not be available to offset Barnett's taxable income after
April 3, 1996, the consummation date of the Barnett Public Offering.
Waxman Industries' common stock price has recently been trading at levels
above the $4.60 exercise price of one million common stock warrants that
expire on September 1, 1996. There can be no assurances that these warrants
will be
18
<PAGE>
exercised. If the warrants were exercised, proceeds would be utilized by
Waxman Industries for general corporate purposes including repayment of debt.
The Company does not have any commitments to make substantial capital
expenditures.
Assuming the Company refinances the Restated Credit Agreement, the Company
believes that the funds generated from operations along with the funds
available under the Restated Credit Agreement will be sufficient to satisfy
Waxman Industries' liquidity requirements until June 1, 1999 (the date that
the $5.7 million principal payment is due on Waxman Industries' Senior
Subordinated Notes) or December 1, 1999 (the date that the cash interest
becomes payable by Waxman Industries under the Deferred Coupon Notes). There
can be no assurance that Waxman Industries will be able to pay cash interest
on the Deferred Coupon Notes commencing in December 1999 or that Waxman
Industries will be able to refinance the Senior Subordinated Notes or the
Deferred Coupon Notes.
DISCUSSION OF CASH FLOWS
For the nine months ended March 31, 1996, the Company generated $11.9
million of cash flow from operations primarily as a result of an increase in
accounts payable and a decrease in inventories. The decreased inventory levels
are due to the Company's inventory reduction efforts. Cash flow used for
investments totaled $4.6 million. Capital expenditures totaled $1.9 million.
Cash flow used for financing totaled $7.6 million. Repayments under the
Company's credit facility totaled $1.9 million and payments on the Term Loan
totaled $3.0 million. As permitted by the Operating Companies Credit Facility
and Term Loan, advances to Waxman Industries of $9.7 million were made by the
Company to fund Waxman Industries' obligations, including debt service.
At March 31, 1996, the Company had working capital of $69.9 million
and a current ratio of .8 to 1.
SEASONALITY
The Company's net sales are generally consistent throughout its
fiscal year.
19
<PAGE>
BUSINESS
GENERAL
The Company believes that it is one of the leading suppliers of
plumbing products to the repair and remodeling market in the United States.
The Company distributes plumbing, hardware and electrical products, to
approximately 50,000 customers in the United States, including, plumbing and
electrical repair and remodeling contractors and independent retailers. The
Company's consolidated net sales from continuing operations were $232.3
million in fiscal 1995 and $175.5 for the nine months ended March 31, 1996.
The Company conducts its business primarily through its wholly-owned
subsidiary, Consumer Products and through Barnett, of which the Company owns
approximately 45% of the outstanding common stock, and, through the ownership
of certain convertible non-voting preferred stock, approximately a 54%
economic interest. The Company also owns several smaller operations.
The Company has several smaller operations which are conducted
through its other subsidiaries, WOC and TWI. WOC includes four operations, the
largest of which are U.S. Lock - a distributor of a full line of security
hardware products, and LeRan - a supplier of copper tubing, brass fittings and
other related products. WOC's other operations also include its Madison
Equipment division, a supplier of electrical products, and its Medal
Distributing division, a supplier of hardware products. TWI includes the
foreign sourcing operations in Mexico, China and Taiwan which support Consumer
Products, WOC and Barnett.
CONSUMER PRODUCTS
Consumer Products markets and distributes approximately 9,400
products to a wide variety of retailers, primarily D-I-Y warehouse home
centers, home improvement centers, mass merchandisers, hardware stores and
lumberyards. Consumer Products' customers include large national retailers
such as Kmart, Builders Square and Wal- Mart as well as large regional D-I-Y
retailers such as Fred Meyer Inc. According to rankings of the largest D-I-Y
retailers published in National Home Center News, an industry trade
publication, Consumer Products' customers include 15 of the 25 largest D-I-Y
retailers in the United States. Consumer Products works closely with its
customers to develop comprehensive marketing and merchandising programs
designed to improve their profitability, efficiently manage shelf space,
reduce inventory levels and maximize floor stock turnover. Consumer Products
also offers certain of its customers the option of private label programs.
During the 1980's, Consumer Products significantly expanded its
business through a combination of internal growth and strategic acquisitions.
The Company's's acquisition strategy focused on businesses which marketed
similar or complementary product lines to customers or markets not previously
served or through channels not previously utilized by the Company. In recent
years, Consumer Products has integrated the acquired businesses to enhance the
Company's purchasing power, improving operating efficiencies and enabling
Consumer Products to cross-sell a broader range of products to a larger
customer base.
In recent years, the rapid growth of large mass merchandisers and
D-I-Y retailers has contributed to a significant consolidation of the United
States retail industry and the formation of large, dominant, product specific
and multi-category retailers. These retailers demand suppliers who can offer a
broad range of quality products and can provide strong marketing and
merchandising support. Due to the consolidation in the D-I-Y retail industry,
a substantial portion of Consumer Products' net sales are generated by a small
number of customers. During the past 24 months, Consumer Products has
restructured its sale and marketing function in order to better position
itself to meet the demands of the retailers. Management believes that its
strategy of developing new products and forming strategic alliances with its
customers will enable Consumer Products to effectively compete and achieve
consistent growth. Consumer Products supplies products to its customers
pursuant to individual purchase orders and has no long-term written contracts
with its customers. In addition, as discussed elsewhere in this Prospectus,
the Company is reevaluating the strategic direction of Consumer Products with
a view toward eliminating certain product lines, optimizing product offerings
and actualizing certain warehousing costs. The Company believes that the
reorientation of Consumer Products strategic direction will initially result
in a decrease in net sales but will strengthen and improve the Consumer
Products business.
20
<PAGE>
Consumer Products' marketing strategy includes offering mass
merchandisers and D-I-Y retailers a comprehensive merchandising program which
includes design, layout and setup of selling areas. Sales and service
personnel assist the retailer in determining the proper product mix in
addition to designing department layouts to effectively display products and
optimally utilize available floor and shelf space. Consumer Products supplies
point-of- purchase displays for both bulk and packaged products, including
color-coded product category signs and color- coordinated bin labels to help
identify products, and backup tags to signify products that require
reordering. Consumer Products also offers certain of its customers the option
of private label programs for their plumbing and floor care products. In-house
design, assembly and packaging capabilities enable Consumer Products to react
quickly and effectively to service its customers' changing needs. In addition,
Consumer Products' products are packaged and designed for ease of use, with
"how to" instructions included to simplify installation, even for the
uninitiated D-I-Y consumer.
Consumer Products' sales and service representatives visit stores
regularly to take reorders and recommend program improvements. These
representatives also file reports with Consumer Products, enabling it to stay
abreast of changing consumer demand and identify developing trends. In order
to support its customers' "just-in-time" requirements, Consumer Products has
significantly improved its EDI capabilities, so as to reduce their inventory
levels and increase returns on investment.
Consumer Products operates and distributes its products through three
strategically located distribution facilities in Cleveland, Ohio, Dallas,
Texas and Reno, Nevada.
PRODUCTS
The following is a discussion of the principal product groups:
Plumbing Products. Consumer Products' plumbing products include
valves and fitting, rubber products, repair kits and tubular products such as
traps and elbows. Many of Consumer Products' plumbing products are sold under
the proprietary trade names Plumbcraft(R), PlumbKing(R) and KF(R). In
addition, Consumer Products offers certain of its customers the option of
private label programs. Consumer Products also offers proprietary lines of
faucets under the trade name Premier(R), as well as a line of shower and bath
accessories under the proprietary trade name Spray Sensations(TM).
Electrical Products. Consumer Products' electrical products include
items such as plugs, adapters, outlets, wire, circuit breakers and various
tools and test equipment. Consumer Products sells many of its electrical
products under the proprietary trade name Electracraft(R). Consumer Products
also sells a line of outdoor weatherproof electrical products, a full line of
ceiling fan accessories, a line of telephone accessories and connecting
devices, a line of audio and video accessories and lamp and light fixture
replacement parts and replacement glassware.
Floor Protective Hardware Products. Consumer Products' floor
protective hardware products include casters, doorstops and other floor,
furniture and wall protective items. Consumer Products markets a complete line
of floor protective hardware products under the proprietary trade name KF(R)
and also under private labels.
BARNETT
Barnett is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to over 40,000 active customers
throughout the United States. Barnett offers and promotes approximately 8,500
name brand and private label products through its industry recognized
Barnett(R) catalogs and telesales operations. Barnett markets its products
through three distinct, comprehensive catalogs that target professional
contractors, hardware stores and maintenance managers. Barnett's staff of over
70 knowledgeable telesalespersons, customer service and technical support
personnel work together to serve customers by assisting in product selection
and offering technical advice. To provide rapid delivery and a strong local
presence, Barnett has established a network of 28 distribution centers
strategically located in 28 major metropolitan areas throughout the United
States. Through these local distribution centers, approximately two-thirds of
Barnett's orders are shipped directly to the customer, usually within 24 hours
of an order. In fiscal 1995, the Company's average order was $286. The
remaining one-third of the orders are picked up
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by the customers at one of Barnett's local distribution centers. Barnett's
strategy of being a low-cost, competitively priced supplier is facilitated by
its volume of purchases and the offshore sourcing of a significant portion of
its private label products. Products are purchased from over 400 domestic and
foreign suppliers.
Barnett believes that its distinctive business model has enabled it
to become a high-volume, cost-efficient direct marketer of competitively
priced plumbing, electrical and hardware products. Barnett's approximately
500-page catalogs offer an extensive selection of products in an easy to use
format enabling customers to consolidate purchases with a single vendor.
Barnett provides an updated version of its catalogs to its customers on
average four times a year. To attract new customers and offer special
promotions to existing customers, Barnett supplements its catalogs with
monthly promotional flyers. Barnett's experienced and knowledgeable inbound
telesales staff, located at Barnett's centralized headquarters in
Jacksonville, Florida, uses Barnett's proprietary information systems to take
customer orders as well as offer technical advice. Barnett's highly trained
outbound telesales staff maintains frequent customer contact, makes telesales
presentations and encourages additional purchases. Targeted customer accounts
are typically assigned an outbound telesalesperson in order to enhance
customer relationships and improve customer satisfaction. Barnett's high
in-stock position and extensive network of local distribution centers enable
it to fulfill approximately 94% of the items included in each customer order
and provide rapid delivery. As a result of its emphasis on customer service,
during the past three years an average of 74% of Barnett's customers placed
orders in the following year.
MARKETING AND DISTRIBUTION
Barnett markets its products nationwide principally through regular
catalog and promotional mailings to existing and potential customers,
supported by a telesales operation, and products are shipped from a network of
28 distribution centers allowing for shipment to and pick-up by customers
generally within one day of the receipt of an order. The outbound telesales
operation is utilized to make telephonic sales presentations to potential
customers that have received written promotional materials and to existing
customers. Barnett's outbound and incoming telesales operations are
centralized in Jacksonville, Florida.
Catalogs
Barnett's three approximately 500 page catalogs containing 8,500
plumbing, electrical and hardware products are mailed to its 40,000 active
customers. These quarterly catalogs are supplemented by monthly promotional
flyers, 2.0 million of which were mailed in fiscal 1995. The Company's
targeted customers include professional contractors, independent hardware
stores and maintenance managers. Barnett's customer retention rate (i.e.,
customers who placed orders in the following year) averaged 74.0% over the
last three fiscal years. The Company has been distributing its principal
catalog since approximately 1958 and, as a result from, believes that the
Barnett(R) name has achieved a very high degree of recognition among the
Company's customers and suppliers.
In January 1993, Barnett introduced a new approximately 500 page
Maintenance USA(TM) catalog containing 7,100 products that targets potential
customers responsible for the maintenance of apartment complexes. Since the
catalog was introduced, Barnett has added approximately 9,100 new maintenance
accounts and mails the Maintenance USA(TM) catalog to over 9,500 existing and
potential customers.
In January 1995, Barnett introduced a new quarterly catalog which
currently contains 8,100 products directed to hardware stores. With this new
catalog, Barnett introduced its We've Made It Easy(TM) program to its hardware
store customers. Every quarter an updated computer diskette is forwarded to
each customer which allows the customer to locate products by part number,
catalog page or product attributes as well as electronically place orders with
Barnett by modem. Barnett plans to offer this service to the customers
receiving its other two catalogs during fiscal 1996.
Barnett believes that there are many opportunities to introduce new
catalogs targeted to distinct customer bases not currently serviced by Barnett
but which utilize many of the products currently carried by Barnett. Examples
of these potential new customer groups include school systems, heating,
ventilation and air conditioning contractors, healthcare facilities,
hotel/motel operators and lighting showrooms.
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Barnett makes its initial contact with potential customers primarily
through promotional flyers. Barnett obtains the names of prospective customers
through the rental of mailing lists from outside marketing information
services and other sources. Barnett uses sophisticated proprietary information
systems to analyze the results of individual catalog and promotional flyer
mailings and uses the information derived from these mailings, as well as
information obtained from Barnett's telesales operations, to create and/or
supplement individual customer profiles and to target future mailings. Barnett
updates its mailing lists frequently to delete inactive customers.
Barnett's in-house art department produces the design and layout for
its catalogs and promotional mailings. Barnett's catalogs are indexed and
illustrated, provide simplified pricing and highlight new product offerings.
Telesales
During fiscal 1995, approximately 77.5% of Barnett's net sales were
generated through Barnett's telesales operation. Barnett's telesales operation
has been designed to make ordering its products as convenient and efficient as
possible thereby enabling Barnett to provide superior customer service.
Barnett offers its customers a nationwide toll-free telephone number that is
currently staffed by 70 telesales, customer service and technical support
personnel who utilize Barnett's proprietary, on-line order processing system.
This sophisticated software provides the telesales staff with detailed
customer profiles and information about products, pricing, promotions and
competition. This data enables Barnett to segment its customer base, analyze
mailing effectiveness on a weekly basis, closely track and manage inventory on
a real time basis and quickly react to and capitalize on market opportunities.
Barnett divides its telesales staff into outbound and inbound groups.
Barnett's experience indicates that customer loyalty is bolstered by the
ability of the telesales staff to develop an ongoing personal relationship
with their customers. Barnett's highly trained outbound telesales staff
maintains frequent customer contact, makes telesales presentations and
encourages additional purchases. Inbound telesalespersons are trained to
quickly process orders from existing customers. They increase sales by
informing customers of price breaks for larger orders, companion items and
replacement items with higher margins. Outbound telesalespersons are also
utilized to make telephonic sales presentations to both potential and existing
customers. Also, for several months prior to the opening of new distribution
centers, Barnett utilizes its telesales operation to generate awareness of
Barnett, its product offerings and the upcoming opening of new distribution
centers located near the target customers.
Barnett conducts a customized, in-depth six week training course for
new telesales employees. Training includes the use of role playing and
videotape analysis. Upon satisfactory completion of their training, new
telesales personnel are provided with a dedicated experienced telesales
employee who serves as a "coach" for the next year. In order to better assure
high telesales service levels, telesales supervisors regularly monitor
telesales calls.
Barnett's current focus has been on expanding its telesales staff.
Barnett plans to expand its telesales operations by 15 to 20 telesalespersons
annually over the next several years. Barnett has over 600,000 prospective
customers within its current industry segments and believes that by increasing
the number of telesalespersons it will be able to access these potential
customers in a cost effective manner.
Distribution Centers
Barnett has established a network of 28 local distribution centers
strategically located in 28 major metropolitan areas throughout the United
States. This network enables Barnett to provide rapid and complete product
delivery and provides a strong local presence.
Barnett's distribution centers range in size from approximately
11,200 square feet to 34,000 square feet and average approximately 20,000
square feet. Distribution centers are typically maintained under operating
leases in commercial or industrial centers. Distribution centers primarily
consist of warehouse and shipping facilities but also include "city sales
counters," typically occupying approximately 600 square feet, where customers
can pick up orders or browse through a limited selection of promotional items.
Barnett is often able to generate incremental sales from customers who pick up
their orders. Barnett has initiated a program to enlarge product displays in
the counter area to better promote the breadth of its product lines.
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Many of Barnett's customers do not keep high inventory levels and
tend to place orders rather frequently. Barnett's experience indicates that
customers prefer to order from local suppliers and that many local
tradespeople prefer to pick up their orders in person rather than to have them
delivered. Therefore, Barnett intends to continue the expansion of its
distribution center network in order to position itself closer to potential
new customers. During 1995, approximately 34% of Barnett's orders were picked
up by its customers.
The factors considered in site selection include the number of
prospective customers in the local target area, the existing sales volume in
such area and the availability and cost of warehouse space, as well as other
demographic information. Barnett has substantial expertise in distribution
center site selection, negotiating leases, reconfiguring space to suit its
needs, and stocking and opening new distribution centers. The average
investment required to open a distribution center is approximately $600,000,
including approximately $300,000 for inventory.
PRODUCTS
Barnett markets an extensive line of over 8,200 plumbing, electrical
and hardware products, many of which are sold under its proprietary trade
names and trademarks. This extensive line of products allows Barnett to serve
as a single source supplier for many of its customers. Since the beginning of
the current fiscal year, Barnett has added approximately 300 new products,
including a new line of power tool accessories and private label paints and
related products. Many of these products are higher margin products bearing
Barnett's proprietary trade names and trademarks. In addition, proprietary
products are often the customers higher margin product offerings.
Barnett tracks sales of new products the first year they are offered
and new products that fail to meet specified sales criteria are discontinued.
To help manage the risk of new product introductions, substantially all new
domestically sourced products are governed by a "12 point agreement" which
allows Barnett to return all slow and non-moving merchandise to its vendor
within the first six months of its offering, without any cost to Barnett.
Barnett believes that its customers respond favorably to the introduction of
new product lines in areas that allow the customers to realize additional cost
savings and to utilize Barnett's catalogs as a means of one-stop shopping for
many of their needs.
Barnett's strategy is to significantly increase the number of product
offerings, as well as its higher margin product offerings. Barnett's catalogs
and monthly promotional flyers emphasize the comparative value of Barnett's
private label products. During fiscal 1995, approximately 26.6% of Barnett's
net sales were generated by the sale of Barnett's private label products.
The following is a discussion of Barnett's principal product groups:
Plumbing Products. Barnett sells branded products of leading plumbing
manufacturers, including Delta(R), Moen(R) and Price Pfister(R). Barnett's
private label plumbing products are also sold under its Barnett(R), Premier(R)
and ProPlusTM trademarks. In fiscal 1995, plumbing products accounted for
76.3% of net sales.
Electrical Products. Barnett sells branded products of leading
electrical supply manufacturers, including Philips(R), Westinghouse(R),
Honeywell(R) and General Electric(R). Certain of Barnett's private label
electrical products are sold under its own proprietary trademarks, including
Barnett(R), Proplus(TM) and Premier(R). In fiscal 1995, electrical products
accounted for 15.2% of Barnett's net sales.
Hardware Products. Barnett sells hardware products of leading
hardware product manufacturers, including Kwikset(R) security hardware
products and Milwaukee(R) power tools. Certain of Barnett's hardware products
are also sold under its own proprietary Legend(TM) trademark. In fiscal 1995,
hardware products accounted for 8.5% of Barnett's net sales.
OTHER OPERATIONS
The Company has several other operations, which are conducted through WOC and
TWI. The most significant of these operations are U.S. Lock, a supplier of
security hardware products, and LeRan, a supplier of copper tubing and
specialty plumbing products. U. S. Lock and LeRan, as well as Madison
Equipment and Medal Distributing, are
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operated as separate divisions of WOC. TWI includes the foreign sourcing
operations in Mexico, China and Taiwan which support Consumer Products,
Barnett and WOC.
U.S. Lock
U.S. Lock, which was acquired by Waxman Industries in 1988, carries a
full line of security hardware products, including locksets, door closers and
locksmith tools. Many of these products are sold under the U.S. Lock(R) and
LegendTM trademarks. U.S. Lock markets and distributes its products primarily
to locksmiths through a telemarketing sales team. U.S. Lock's telemarketing
effort is supplemented with a catalog that is mailed annually to 5,600
existing customers and promotional flyers. Since its acquisition by Waxman
Industries, U.S. Lock has increased its number of warehouses from one to four,
three of which are shared with Barnett. Shared facilities allow the Company to
realize additional efficiencies by consolidating space requirements and
reducing personnel costs.
LeRan
LeRan, which was acquired by Waxman Industries in 1985, is a supplier
of copper tubing and fittings, brass valves and fittings, malleable fittings
and related products. Its customers include liquid petroleum gas dealers,
lumberyards, plumbing and mechanical contractors and D-I-Y retailers. LeRan
markets its products primarily through salesmen and outside service
representative organizations. These efforts are supported by a catalog, which
is mailed semiannually to 6,400 existing customers, monthly promotional flyers
and a telemarketing program. LeRan currently services its customers from four
regional warehouses, one of which is shared with Barnett.
Other
WOC's other operations also include its Madison Equipment division, a
supplier of electrical products, and its Medal Distributing division, a
supplier of hardware products.
PURCHASING
For the year ended June 30, 1995, products purchased overseas,
primarily from Taiwan, China and Mexico, accounted for approximately 27.8% of
the total product purchases made by the Company.
TWI, through its subsidiaries, operates the Taiwan and Mainland China
facilities, which assemble and package plumbing and electrical products. In
addition, the facility in Mainland China manufactures and packages plastic
floor protective hardware. The Company believes that these facilities give it
competitive advantages, in terms of cost and flexibility in sourcing. Both
labor and physical plant costs are significantly below those in the United
States.
During fiscal 1991, Waxman Industries purchased WAMI, a small
manufacturer of plumbing pipe nipples in Tijuana, Mexico. Pipe nipples are
short lengths of pipe from 1/2 of an inch to 6 feet long, threaded at each
end. As a result of this acquisition, the Company is vertically integrated in
the manufacture and distribution of pipe nipples. Since the acquisition, in
order to take advantage of lower labor costs, the Company has relocated
certain of its United States packaging operations to TWI's WAMI subsidiary in
Mexico.
Substantially all of the other products purchased by the Company are
manufactured for it by third parties. The Company estimates that it purchases
products and materials from over approximately 1,200 suppliers and is not
dependent on any single unaffiliated supplier for any of its requirements.
The following table sets forth the approximate percentage of net
sales attributable to the Company's principal products groups:
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1995 1994 1993
----- ----- -----
Plumbing 72% 73% 74%
Electrical 11% 11% 10%
Hardware 17% 16% 16%
----- ----- -----
Total Net Sales 100% 100% 100%
===== ===== =====
IMPORT RESTRICTIONS
Under current United States government regulations, all products
manufactured offshore are subject to import restrictions. The Company
currently imports goods from Mexico under the preferential import regulations
commonly known as '807' and as direct imports from China and Taiwan. The '807'
arrangement permits an importer who purchases raw materials in the United
States and then ships the raw materials to an offshore factory for assembly,
to reimport the goods without quota restriction and to pay a duty only on the
value added in the offshore factory.
Where the Company chooses to directly import goods purchased outside
of the United States, the Company may be subject to import quota restrictions,
depending on the country in which assembly takes place. These restrictions may
limit the amount of goods of a particular category that a country may export
to the United States. If the Company cannot obtain the necessary quota, the
Company will not be able to import the goods into the United States. Export
visas for the goods purchased offshore by the Company are readily available.
The above arrangements, both '807' and quota restrictions, may be
superseded by more favorable regulations with respect to Mexico under the
North American Free Trade Agreement ("NAFTA"), or may be limited by revision
or canceled at any time by the United States government. The Company does not
believe that its relative competitive position will be adversely affected by
NAFTA. As a result of the passage of NAFTA, importation from Mexico will
become more competitive in the near future relative to importation from other
exporting countries.
COMPETITION
The Company faces significant competition from different competitors
within each of its product lines, although it has no competitor offering the
range of products in all of the product lines that the Company offers. The
Company believes that its buying power, extensive inventory, emphasis on
customer service and merchandising programs have contributed to its ability to
compete successfully in its various markets. In the areas of electrical and
hardware supplies, the Company faces significant competition from smaller
companies which specialize in particular types of products and larger
companies which manufacture their own products and have greater financial
resources than the Company. Barnett's mail order business competes principally
with local distributors of plumbing, electrical and hardware products. The
Company believes that competition in sales to both mail order customers and
retailers is primarily based on price, product quality and selection, as well
as customer service, which includes speed of responses for mail order
customers and packaging and merchandising for retailers.
EMPLOYEES
As of December 31, 1995, the Company employed 1,196 persons, 277 of
whom were clerical and administrative personnel, 176 of whom were sales
service representatives and 743 of whom were either production or warehouse
personnel. The Company considers its relations with its employees to be
satisfactory.
TRADEMARKS
Several of the trademarks and trade names used by the Company are considered
to have significant value in its business. See "Business -- Consumer Products
- -- Products" and " -- Barnett -- Products," and "-- Other Operations."
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PROPERTIES
The following table sets forth, as of March 31, 1996, certain
information with respect to the Company's principal physical properties:
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PURPOSE DATE
<S> <C> <C> <C>
24455 Aurora Road 125,000 Consumer Products Corporate 6/30/02
Bedford Hts., OH (1) Office and Distribution Center
330 Vine Street 80,000 Medal Distributing 2/28/01
Sharon, PA Office and Distribution Center
902 Avenue T. 77,000 Consumer Products 5/31/00
Grand Prairie, TX (2) Office and Distribution Center
945 Spice Island Drive 71,000 Consumer Products 7/31/98
Sparks, NV Office and Distribution Center
3333 Lenox Avenue 60,000 Barnett Corporate 10/31/03
Jacksonville, FL Office and Distribution Center
300 Jay Street 56,000 LeRan Owned
Coldwater, MI Office and Distribution Center
No. 10, 7th Road 55,000 TWI Owned
Industrial Park Office, Packaging
Taichung, Taiwan and Distribution Center
Republic of China
77 Rodeo Drive 46,000 US Lock Owned
Brentwood, NY Office and Distribution Center
Dan Keng Village 45,000 Office, Packaging Owned
Fu Ming County and Distribution Center
Shenzhen, P.R. China
</TABLE>
(1)Aurora Investment Co., a partnership owned by Melvin and Armond
Waxman, together with certain other members of their families, is the
owner and lessor of this property. Consumer Products has the option
to renew the lease for a five-year term at the market rate at the
time of renewal.
(2)Waxman Industries has the option to renew the lease for three
additional five-year terms.
In addition to the properties shown in the table, the Company
operates 9 distribution centers ranging in size from 10,000 to 40,000 square
feet. In addition, Barnett leases 26 distribution centers.
Handl-it Inc., a corporation owned by John S. Peters, the Senior Vice
President - Operations of Waxman Industries and the Company, together with
certain other members of his family, provides Consumer Products with certain
outside warehousing services under several lease arrangements which expire
between May and December 1996. Consumer Products may renew these leases as
they expire depending on its requirements at the time.
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The Company believes that its facilities are suitable for its
operations and provide the Company with adequate productive capacity.
LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the financial position or operations of the Company.
ENVIRONMENTAL REGULATIONS
The Company is subject to certain federal, state and local
environmental laws and regulations. The Company believes that it is in
material compliance with such laws and regulations applicable to it. To the
extent any subsidiaries of Waxman Industries are not in compliance with such
laws and regulations, Waxman Industries, as well as such subsidiaries, may be
liable for such non-compliance. However, in any event, the Company is not
aware of any such liabilities which could have a material adverse effect on it
or any of its subsidiaries.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors, executive officers and key
employees of the Company are the same as those of Waxman Industries. Their
respective ages and positions are as follows:
NAME AGE POSITION AT WAXMAN INDUSTRIES AND THE
COMPANY
Melvin Waxman 61 Chairman of the Board and Co-Chief Executive Officer
Armond Waxman 57 President, Co-Chief Executive Officer and Treasurer
John S. Peters 47 Senior Vice President--Operations
Laurence S. Waxman 39 Senior Vice President
Andrea Luiga 38 Chief Financial Officer (resigned April 1996)
Michael Vantusko 39 Vice President--Finance and Chief Financial Officer
Irving Z. Friedman 63 Director
Samuel J. Krasney 70 Director
William R. Pray 48 Director
Judy Robins 47 Director
Set forth below is a biographical description of each director,
executive officer and key employee of the Company and Waxman Industries
mentioned above.
Mr. Melvin Waxman was elected Co-Chairman of the Board and Co-Chief
Executive Officer of the Company and Waxman Industries in June 1995. Upon
consummation of the Barnett Public Offering, Mr. Waxman became Chairman of the
Board and Co-Chief Executive Officer of the Company. Prior thereto, Mr. Waxman
was the Chairman of the Board and Co-Chief Executive Officer of the Company
since its incorporation in February 1994. Mr. Waxman was elected Co-Chief
Executive Officer of Waxman Industries in May 1988. Mr. Waxman has been a
Chief Executive Officer of Waxman Industries for over 20 years and has been a
director of Waxman Industries since 1962. Mr. Waxman has been Chairman of the
Board of Waxman Industries since August 1976. Melvin Waxman and Armond Waxman
are brothers.
Mr. Armond Waxman was elected Co-Chairman of the Board, Co-Chief
Executive Officer and Treasurer of the Company and Waxman Industries in June
1995. Upon consummation of the Barnett Public Offering, Mr. Waxman became
President and Co-Chief Executive Officer. Prior thereto, Mr. Waxman was the
President, Co-Chief Executive Officer, Treasurer and a Director of the Company
since its incorporation in February 1994. Mr. Waxman was elected Co-Chief
Executive Officer of Waxman Industries in May 1988. Mr. Waxman was the
President and Treasurer of Waxman Industries since August 1976. Mr. Waxman has
been a director of Waxman Industries since 1962 and was Chief Operating
Officer of Waxman Industries from August 1976 to May 1988. Armond Waxman and
Melvin Waxman are brothers.
Mr. Pray was elected the President and Chief Operating Officer of the
Company and Waxman Industries in June 1995 and was Senior Vice President of
the Company from its incorporation in February 1994 to June 1995. Mr. Pray
served as Senior Vice President of Waxman Industries from February 1991 and is
also President of Barnett, a position he has held since 1987. Mr. Pray joined
Barnett in 1979 as Vice President of Sales and Marketing. Upon the
consummation of the Barnett Public Offering, Mr. Pray resigned from his
position as an officer of the Company and of Waxman Industries, but remains a
director.
Mr. Peters has been Senior Vice President--Operations of the Company
since its incorporation in February 1994. Mr. Peters was elected to the
position of Senior Vice President--Operations of Waxman Industries in April
1988, after serving as Vice President--Operations of Waxman Industries since
February 1985. Prior to that Mr. Peters had been Vice
President--Personnel/Administration of Waxman Industries since February 1979.
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Mr. Laurence Waxman has been Senior Vice President of the Company since
its incorporation in February 1994. Mr. Waxman was elected Senior Vice
President of Waxman Industries in November 1993 and is also President of
Consumer Products, a position he has held since 1988. Mr. Waxman joined Waxman
Industries in 1981. Mr. Laurence Waxman is the son of Melvin Waxman.
Ms. Luiga was elected Vice President and Chief Financial Officer of the
Company and Waxman Industries in August 1995 and was Vice President/Group
Controller of Barnett since August 1991. Ms. Luiga joined Barnett in March
1988 as Controller. Upon the consummation of the Barnett Public Offering, Ms.
Luiga resigned from her position as an officer of the Company and of Waxman
Industries.
Mr. Vantusko, a certified public accountant, joined the Company in
October 1995 as Vice President-Finance. From February 1994 to October 1995 he
served as the Chief Financial Officer of OverDrive Systems, Inc., an emerging
software developer of electronic books. From 1979 to 1993 he was employed by
The Fairchild Corporation (formerly Banner Industries, Inc.) where he held
several positions during his tenure including Chief Financial Officer of
Fairchild's largest wholly owned operating division and Vice-President of
Fairchild. Upon the consummation of the Barnett Public Offering, Mr. Vantusko
became the Chief Financial Officer of the Company and Waxman Industries.
Mr. Friedman has been a director of the Company since its incorporation
in February 1994. Mr. Friedman has been a director of Waxman Industries since
1989. Mr. Friedman has been a certified public accountant with the firm of
Krasney Polk Friedman & Fishman for more than five years.
Mr. Krasney has been a director of the Company since its incorporation in
February 1994. Mr. Krasney has been a director of Waxman Industries since
1977. In September 1993, Mr. Krasney retired from his position as Chairman of
the Board, President and Chief Executive Officer of Banner Aerospace, Inc., a
distributor of parts in the aviation aftermarket, a position he had held since
June 1990. In September 1993, Mr. Krasney also retired from The Fairchild
Corporation (formerly Banner Industries, Inc.) where he had been Vice Chairman
of the Board since 1985. Fairchild is a manufacturer and distributor of
fasteners to the aerospace industry and industrial products for the plastic
injection molding industry and other industrial markets and is a furnisher of
telecommunication services to office buildings. Mr. Krasney is also a director
of FabriCenters of America, Inc.
Mrs. Robins has been a director of the Company since its incorporation in
February 1994. Mrs. Robins has been a director of Waxman Industries since
1980. Mrs. Robins has owned and operated an interior design business for more
than five years. Mrs. Robins is the sister of Melvin and Armond Waxman. Mrs.
Robins' husband is the Secretary of Waxman Industries.
THE COMPANY
BOARD OF DIRECTORS
The number of directors on the Board of Directors of the Company (the
"Company Board") is presently fixed at six. Directors of the Company are
elected at the annual meeting of stockholders and hold office for one year and
until their successors are elected. The Company has an Executive Committee and
an Audit Committee. Messrs. Melvin and Armond Waxman and Krasney serve on the
Executive Committee and Messrs. Friedman and Krasney serve on the Audit
Committee. The Audit Committee acts as a liaison between the Company's
independent auditors and the Board of Directors, reviews the scope of the
annual audit and the management letter associated therewith, reviews the
Company's annual and quarterly financial statements and reviews the
sufficiency of the Company's internal accounting controls.
DIRECTOR REMUNERATION
Each director of Waxman Industries who is not an employee of Waxman
Industries received a fee of $3,000 per fiscal quarter for services as a
director during fiscal 1995 plus a fee of $1,000 plus traveling expenses for
each Board meeting he or she attended. Members of the Company Board do not
receive any additional compensation for serving as directors of the Company.
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EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by Waxman
Industries for services rendered to it and its subsidiaries, including the
Company, during fiscal 1995 to the Co-Chief Executive Officers of the Company,
the four other most highly compensated executive officers of the Company
including a former highly compensated executive officer of the Company in the
fiscal years indicated. Officers of Waxman Industries have not received any
compensation, in addition to the compensation they receive from Waxman
Industries, for serving as officers of the Company; provided, however, that
Mr. Pray is paid by Barnett for services rendered to it and did not receive
any cash compensation for the services he rendered to Waxman Industries or its
other subsidiaries. Upon consummation of the Barnett Public Offering, Mr. Pray
resigned from his offices at Waxman Industries and the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------
ANNUAL PAYOUTS
COMPENSATION(1) AWARDS LTIP
--------------- ------ ----
ALL OTHER
NAME AND RESTRICTED COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) STOCK($) OPTIONS (#) PAYOUTS ($) ($)(3)(4)
------------------ ---- --------- ----------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Melvin Waxman 1995 311,065 -- -- -- -- 111,397
Chairman of the Board 1994 325,000 100,000 -- 300,000 -- 45,604
and Co-Chief Executive 1993 365,000 100,000 -- 250,000 -- 65,293
Officer
Armond Waxman 1995 353,277 100,000 -- -- -- 97,080
President and Co-Chief 1994 366,923 200,000 -- 300,000 -- 86,776
Executive Officer 1993 378,942 100,000 -- 250,000 -- 50,464
William R. Pray 1995 228,200 57,607 -- 32,500 -- 39,968(5)
Former President 1994 206,000 75,000 -- 92,500 -- --
and Chief 1993 200,000 45,000 -- 25,000 -- 14,789
Operating Officer
John S. Peters 1995 136,119 21,000 -- -- -- 12,500
Senior Vice President -- 1994 130,018 42,500 -- 52,500 -- 12,500
Operations 1993 132,644 25,000 -- 45,000 -- 14,137
Laurence S. Waxman 1995 190,480 50,000 -- -- -- 12,544
Senior Vice President 1994 151,826 65,000 -- 57,500 -- 11,589
1993 135,000 40,000 -- 50,000 -- 14,058
--
Neal R. Restivo(6) 1995 133,769 21,000 -- -- -- --
Former Vice President 1994 111,346 55,000 -- 32,500 -- --
Finance and Chief 1993 93,300 17,500 -- 25,000 -- 1,100
Financial Officer
</TABLE>
(1) Certain executive officers received compensation in fiscal 1993, 1994 and
1995 in the form of perquisites, the amount of which does
not exceed reporting thresholds.
31
<PAGE>
(2) Messrs. Peters and Restivo received their bonuses under Waxman
Industries' Profit Incentive Plan. Mr. Pray received a $25,000
discretionary bonus in 1994. Mr. Laurence Waxman received his bonus
pursuant to his employment Agreement. Messrs. Armond and Melvin Waxman
received their bonuses under separate agreements.
(3) For fiscal 1993, includes Waxman Industries' contributions to the Waxman
Industries' Profit-Sharing Retirement Plan and premiums on split-dollar
life insurance policies. Profit Sharing Plan contributions were as
follows: $2,289 each for Messrs. Melvin and Armond Waxman and Mr. Pray,
$1,637 for Mr. Peters, $1,558 for Laurence Waxman and $1,100 for Mr.
Restivo. Premiums on split-dollar life insurance policies were as
follows: $63,004 for Melvin Waxman, $48,175 for Armond Waxman, $12,500
each for Messrs. Pray, Peters and Laurence Waxman.
(4) For fiscal 1995 and 1994, amounts represent premiums on split-dollar life
insurance policies.
(5) Represents the grant of 25,000 shares of Waxman Industries' common stock
to Mr. Pray in June 1995 and the accrual of a tax "gross up" payment with
respect thereto.
(6) Mr. Restivo terminated his employment with Waxman Industries effective
September 29, 1995.
EMPLOYMENT AGREEMENTS
Upon consummation of the Barnett Public Offering, Mr. Pray resigned from
his offices at Waxman Industries and the Company. Mr. Pray and Barnett entered
into a new 10-year employment Agreement pursuant to which Mr. Pray will
continue to serve as President of Barnett at an initial annual salary of
$260,000, plus discretionary bonuses. In addition, pursuant to the terms of
the new employment Agreement, Mr. Pray will continue to be provided with
certain benefits and prerequisites currently provided to him, as well as a
$2,000,000 split dollar life insurance policy and will also enter into a money
purchase deferred compensation Agreement pursuant to which Barnett will
establish an account into which it will deposit approximately $55,000
annually. The balance remaining in the account upon the termination of
employment of Mr. Pray shall be paid to him or his beneficiaries, as the case
may be.
Mr. Laurence Waxman entered into an employment Agreement with Consumer
Products, which became effective as of November 1, 1994 and terminates on
October 31, 1999. Pursuant to such employment Agreement, Mr. Laurence Waxman
is to serve as President of Consumer Products, and is also to serve in such
further offices or positions with Consumer Products or any subsidiary or
affiliate of Consumer Products as shall, from time to time, be assigned by the
Board of Directors of Consumer Products. Mr. Laurence Waxman's employment
Agreement provides for an annual salary of $200,000 for the first year of the
employment Agreement and provides that for each year thereafter the annual
salary will be increased by six percent of the prior year's salary. Additional
increases in salary and the granting of bonuses to Mr. Laurence Waxman will be
determined by Consumer Products, in its sole discretion, based on such
individual's performance and contributions to the success of Consumer
Products, his responsibilities and duties and the salaries of other senior
executives of Consumer Products. The employment Agreement provides that upon
termination of employment by Mr. Laurence Waxman for good reason (as defined
therein) or by Waxman Industries for any reason other than death, disability
(as defined therein) or cause (as defined therein), Mr. Laurence Waxman will
be entitled to receive all of the compensation he would otherwise be entitled
to through the end of the term of the Agreement. The employment Agreement also
contains provisions which restrict Mr. Laurence Waxman from competing with
Waxman Industries or Consumer Products during the term of the Agreement and
for two years following the termination thereof.
Mr. Peters entered into an employment Agreement with Waxman Industries
which became effective as of January 1, 1992, was amended as of October 23,
1995 and terminates on June 30, 1997. Pursuant to such employment Agreement,
Mr. Peters is to serve as Senior Vice President, Operations of Waxman
Industries, and is also to serve in such substitute or further offices or
positions with Waxman Industries or any subsidiary or affiliate of Waxman
Industries as shall, from time to time, be assigned by the Board of Directors
of Waxman Industries. Mr. Peters' employment Agreement provides for a minimum
annual salary of $125,000, which salary will be reviewed annually by Waxman
Industries (and shall be reduced by a corresponding percentage reduction in
hours worked in the sole discretion of Waxman Industries to an annual amount
not to be less than $75,000). Mr. Peters' annual salary was decreased to
$90,0000 in fiscal 1995 due to a corresponding reduction in hours worked to
three days per week. Increases in salary and the granting of bonuses to Mr.
Peters will be determined by Waxman Industries, in its sole
32
<PAGE>
discretion, based on such individual's performance and contributions to the
success of Waxman Industries, his responsibilities and duties and the salaries
of other senior executives of Waxman Industries. The employment Agreement
provides that upon termination of employment for any reason other than death,
disability (as defined therein) or cause (as defined therein), Mr. Peters will
be entitled to receive all of the compensation he would otherwise be entitled
to through the end of the term of the Agreement. The employment Agreement also
contains provisions which restrict Mr. Peters from competing with Waxman
Industries during the term of the Agreement and for two years following the
termination thereof.
STOCK OPTION AND SAR GRANTS
The following table sets forth the information noted for all grants of
stock options made by Waxman Industries during fiscal 1995 to each of the
executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OPTION/SAR(1) GRANTS IN LAST FISCAL YEAR OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR
OPTION TERM(2)
% OF TOTAL
OPTIONS
OPTIONS GRANTED TO
GRANTED EMPLOYEES EXERCISE EXPIRATION
NAME (#) IN FISCAL PRICE ($/SH) DATE 5%($) 10%($)
---- --- ------ ------------ ------ ----- ------
YEAR
----
<S> <C> <C> <C> <C> <C> <C>
William R. Pray 32,500 100% $1.375 June 16, 28,104 71,220
2005
</TABLE>
(1) There were no SARs granted to any of the named executive officers in
fiscal 1995.
(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1995 dollars. The dollar amounts
included in these columns are the result of calculations at assumed rates
set by the Commission for illustration purposes, and these rates are not
intended to be a forecast of the Common Stock price and are not
necessarily indicative of the values that may be realized by the named
executive officer.
33
<PAGE>
STOCK OPTION AND SAR EXERCISES
The following table sets forth the information noted for all exercises
of stock options and SARs for Waxman Industries during fiscal 1995 by each of
the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR- IN-THE-MONEY
NAME EXERCISE(#) REALIZED($) END(#) OPTIONS AT FISCAL
EXERCISABLE/UNEXERCISABLE YEAR-END($)
<S> <C> <C> <C> <C>
Melvin Waxman -- -- 75,000/225,000 --
Armond Waxman -- -- 75,000/225,000 --
William R. Pray -- -- 16,875/83,125 --
John S. Peters -- -- 13,125/39,375 --
Laurence S. Waxman -- -- 14,375/43,125 --
Neal R. Restivo(1) -- -- 8,125/24,375 --
</TABLE>
(1) Mr. Restivo terminated his employment with Waxman Industries effective
September 29, 1995.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
CAPITAL STOCK OF THE COMPANY
As of the date of this Prospectus, all of the issued and outstanding
shares of capital stock of the Company are owned by Waxman Industries. Each of
Messrs. Armond and Melvin Waxman may be deemed to be the beneficial owner of
such shares by virtue of their positions as Co-Chief Executive Officer and
Co-Chairman of the Board of Directors and as controlling stockholders of
Waxman Industries. The mailing address for Waxman Industries and Messrs.
Armond and Melvin Waxman is the executive office of the Company. All of the
shares of capital stock of the Company owned by Waxman Industries have been
pledged as collateral security for the Deferred Coupon Notes. In the event
that Waxman Industries defaults on its obligations to the holders of such
indebtedness, the pledgee thereunder may sell or dispose of the pledged shares
of capital stock and, as a result, could effect a change of control of the
Company.
RECENT SECURITIES OFFERING AND RELATED MATTERS
The Reorganization
On April 3, 1996, as part of the Reorganization, the Company issued the
Old Notes in exchange for $43,026,000 aggregate principal amount of the
Company's outstanding Senior Subordinated Notes pursuant to the Private
Exchange Offer. In addition to the Private Exchange Offer, the components of
the Reorganization included (i) the Senior Subordinated Consent Solicitation,
(ii) the establishment of a $30.0 million Restated Credit Agreement, (iii) the
Barnett Public Offering, (iv) the defeasance of the Senior Secured Notes and
(v) the repayment of Barnett's borrowings under the Operating Companies Credit
Facility (including $23.0 under the Company's then existing working capital
credit facility and $5.0 million under the Term Loan (the "Barnett
Financing")). No component of the Reorganization is dependent on the
successful completion of the Exchange Offer.
Registration Rights Agreement
Pursuant to the Registration Rights Agreement, the Company has agreed to
use its best efforts to register the Exchange Offer under the Act.
Pursuant to the Registration Rights Agreement, the Company has agreed to
use its best efforts (i) to file, within 60 days of the issuance of the Old
Notes, a registration statement under the Act with respect to an exchange
offer whereby securities substantially identical to the Old Notes would be
offered for exchange with the Old Notes in order to permit the original
purchasers of the Old Notes to offer and sell the New Notes under the Act and
(ii) to cause such registration statement to become effective within 120 days
of the date of issuance of the Old Notes. Upon the registration statement
being declared effective, the Company will offer the New Notes in exchange for
surrender of the Old Notes. The Company has agreed to keep the Exchange Offer
pursuant to the registration statement open for not less than 30 days (or
longer if required by applicable law) after the date notice of such offer is
mailed to the holders of the Old Notes. In the event that the Company or the
holders of 25% in aggregate principal amount of the Old Notes reasonably
determine in good faith that because of any change in law or applicable
interpretations of the Staff of the Commission the Company is not permitted to
effect the Exchange Offer, or if for any other reason the Exchange Offer is
not consummated within 180 days of the date of the Registration Rights
Agreement or if a holder of the Old Notes is not permitted, because of a
change in law or interpretations of the Staff of the Commission, to
participate in the Exchange Offer, the Company will, at its cost, (a) as
promptly as practicable, file a shelf registration statement covering resales
of the Old Notes, (b) use its best efforts to cause such shelf registration
statement to be declared effective under the Securities Act and (c) use its
best efforts to keep continuously effective such shelf registration statement
until three years after the issuance of the Old Notes or such shorter period
ending when all of the Old Notes eligible for sale thereunder have been sold
thereunder. In the event that the registration statement is not filed or
effective by, or continuously effective through, the dates referred to above
or the Commission shall have issued a stop order suspending the effectiveness
of the registration statement or any shelf registration statement with respect
to the Old Notes at a time when such registration statement or shelf
registration statement, as the case may be, is required to be kept effective
by the Company or the prospectus contained in any such registration statement
or shelf registration statement, as amended
35
<PAGE>
or supplemented, shall (x) not contain current information required by the
Securities Act and the rules and regulations promulgated thereunder or (y)
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the Company has agreed to pay, or cause to be paid, as liquidated
damages and not as a penalty to each holder of Old Notes, an amount equal to
$0.05 per week per $1,000 of principal amount of Old Notes held by such
holder, for each week during the 90-day period beginning on the date referred
to above or the date of the order suspending effectiveness or the date on
which the prospectus shall not contain such current information or shall
contain any such untrue statement or omit to state any such material fact.
Such liquidated damages shall be increased by $0.05 per week per $1,000 of
principal amount of Old Notes at the beginning of each subsequent 90-day
period up to a maximum aggregate amount of $0.20 per week per $1,000 of
principal amount of Old Notes. The Company has agreed to pay all expenses
incident to the Company's performance of or compliance with the Registration
Rights Agreement, including the reasonable fees and expenses of counsel to the
original purchasers of the Old Notes but excluding any underwriting fees,
discounts or commissions attributable to the sale of the Notes. Each of the
Company and the Trustee, on behalf of the original purchasers of the Old
Notes, pursuant to the Registration Rights Agreement, have agreed to indemnify
the other party, its officers, directors and controlling persons in respect of
certain liabilities and expenses arising, under certain circumstances, out of
any registration of the Old Notes pursuant to the Registration Rights
Agreement. The Company has prepared and filed the Registration Statement of
which this Prospectus forms a part pursuant to the Registration Rights
Agreement.
THE EXCHANGE OFFER
PURPOSE OF EXCHANGE OFFER
The outstanding Old Notes in the aggregate principal amount at maturity
of $43,026,000 were originally issued on April 3, 1996. The offer and sale of
the Old Notes was not registered under the Act in reliance upon the exemption
therefrom provided by Section 4(2) of the Act. The Old Notes may not be
reoffered, resold, or transferred other than pursuant to an effective
registration statement filed pursuant to the Act or unless an exemption from
the registration requirements of the Act is available.
Pursuant to Rule 144 promulgated under Act, the Old Notes may generally
be resold, subject to certain conditions specified in the Rule, (a) commencing
two years after the date of original issuance, in an amount up to, for any
three-month period, the greater of 1% of the principal amount at maturity of
the Old Notes then outstanding or the average weekly trading volume of the Old
Notes during the four calendar weeks immediately preceding the filing of the
required notice of sale with the Commission, and (b) commencing three years
after the date of original issuance, in any amount and otherwise without
restriction by a Holder who is not, and has not been for the preceding three
months, an affiliate of the Company. Following the Exchange Offer, the
calculation of the amount of permissible sales under Rule 144 may depend on
the combined amount of outstanding Old Notes and New Notes, and the trading
volume of the Old Notes and the New Notes together. Additionally, under
certain circumstances, an exemption from the registration requirements of the
Act may be available for the resale of the Old Notes to "Qualified
Institutional Buyers" under Rule 144A promulgated thereunder. Certain other
exemptions may also be available under other provisions of the federal
securities laws for the resale of the Old Notes.
In connection with the original sale of the Old Notes, the Company
entered into the Registration Rights Agreement, pursuant to which the Company
agreed to file with the Commission a registration statement covering the
exchange by the Company of the New Notes for the Old Notes in a transaction
designed to provide certain Holders of Old Notes with an opportunity to
acquire New Notes which, unlike the Old Notes, may be offered for resale,
resold and otherwise transferred without compliance with the registration and
prospectus delivery requirements of the Act. Holders who are unable or choose
not to exchange their Old Notes pursuant to this Exchange Offer will continue
to hold securities that are subject to restrictions on transfer pursuant to
the Act. The Company has no obligation to provide for the registration under
the Act of Old Notes outstanding after the expiration of the Exchange Offer.
Such Holders should consult their own legal counsel for advice as to any
restrictions that might apply to the resale of their Old Notes. The New Notes
otherwise will be identical in all material respects (including interest rate,
maturity and restrictive covenants) to the Old Notes for which they may be
exchanged pursuant to this Exchange Offer.
36
<PAGE>
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means Midnight,
New York City time, on June __, 1996; provided, however, that if the Company,
in its sole discretion, has extended the period of time during which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $43,026,000 aggregate principal amount
at maturity of Old Notes were outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about May __, 1996, to all
Holders of Old Notes known to the Company. The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "-- Certain Conditions to the Exchange Offer"
below.
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open,
and thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof. During any such
extension, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Old Notes
not accepted for exchange for any reason will be returned without expense to
the tendering Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "-- Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Old Notes as
promptly as practicable, such notice in the case of any extension to be issued
by means of a press release or other public announcement no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. In the event that the Company amends the Exchange
Offer, the Company will amend this Prospectus as required by the Federal
Securities laws.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
Agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in the Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to The Huntington
National Bank (the "Exchange Agent") at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of a
book-entry transfer (a "Book- Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date, or (iii) the Holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter
37
<PAGE>
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantees must be by a firm which is a member of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than a signer of the Letter of Transmittal, the Old Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Holder with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
If the New Notes are to be issued, or untendered Old Notes are to be
reissued, to a person other than the Holder thereof, the Old Notes surrendered
for exchange must be properly endorsed or accompanied by appropriate bond
powers in satisfactory form as determined by the Exchange Agent in its sole
discretion. If Old Notes are registered in the name of the person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange
must be properly endorsed or accompanied by appropriate bond powers in
satisfactory form as determined by the Exchange Agent in its sole discretion,
duly executed by the registered Holder with the signature thereon guaranteed
by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Exchange Agent of their
authority to so act must be submitted.
Tenders must be made in round number multiples of the principal amount of
$1,000. Subject to the foregoing, tendering Holders of Old Notes may tender
less than the aggregate principal amounts represented by the Old Notes
deposited with the Company provided they appropriately indicate this fact on
the Letter of Transmittal accompanying the tendered Old Notes. If less than
all of the Old Notes evidenced by a submitted certificate are to be tendered,
a reissued certificate representing the untendered Old Notes, together with a
certificate representing the New Notes, will be sent to such tendering Holder,
unless otherwise provided in the appropriate box on the Letter of Transmittal.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, that neither the Holder nor
any such other person has an intention to, or an arrangement or understanding
with any person, to participate in the distribution of such New Notes and that
neither the Holder nor any such other person is an "affiliate," as defined
under Rule 405 of the Act, of the Company. A broker-dealer holding Old Notes
may participate in the Exchange Offer provided that it acquired the Old Notes
for its own account as a result of market-making or other trading activities.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning the Act.
38
<PAGE>
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Old
Notes properly tendered and will issue the New Notes promptly after acceptance
of the Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Interest on the New Notes will accrue from April 3,
1996, the date of original issuance of the Old Notes.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer (including, without limitation, the determination that the
tendering Holder is an affiliate of the Company or is not acquiring the New
Notes in the ordinary course of business with no arrangement or understanding
with any person to participate in the distribution of the New Notes) or if Old
Notes are submitted for a greater principal amount than the Holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering Holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent, if requested by the Company, will make a request to
establish an account with respect to the Old Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business days after the
date of this Prospectus, and any financial institution that is a participant
in the Book-Entry Transfer Facility's systems may make book-entry delivery of
Old Notes by causing the Book-Entry Transfer Facility to transfer such Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "Exchange Agent"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-
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Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "-- Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if
at any time before the acceptance of such Old Notes for exchange or the
exchange of the New Notes for such Old Notes, any of the following events
shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to
restrain or prohibit the making or consummation of the Exchange Offer or
any other transaction contemplated by the Exchange Offer, or assessing or
seeking any damages as a result thereof or in connection therewith, or
(ii) resulting in a material delay in the ability of the Company to
accept for exchange or exchange some or all of the Old Notes pursuant to
the Exchange Offer, or any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed
applicable to the Exchange Offer or any of the transactions contemplated
by the Exchange Offer by any government or governmental authority,
domestic or foreign, or any action shall have been taken, proposed or
threatened, by any government, governmental authority, agency or court,
domestic or foreign, that in the sole judgment of the Company might
directly or indirectly result in any of the consequences referred to in
clauses (i) or (ii) above or, in the sole judgment of the Company, might
result in the holders of New Notes having obligations with respect to
resales and transfers of New Notes which are greater than those described
in the interpretation of the Commission referred to on the cover page of
this Prospectus, or would otherwise make it inadvisable to proceed with
the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any
limitation by any
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governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by
the Exchange Offer, (iii) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States
or any limitation by any governmental agency or authority which
adversely affects the extension of credit or (iv) a commencement of
war, armed hostilities or other similar international calamity
directly or indirectly involving the United States, or, in the case
of any of the foregoing existing at the time of the commencement of
the Exchange Offer, a material acceleration or worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties,
assets, liabilities, financial condition, operations, results of
operations or prospects of the Company and its subsidiaries taken as
a whole that, in the sole judgment of the Company, is or may be
adverse to the Company, or the Company shall have become aware of
facts that, in the sole judgment of the Company, have or may have
adverse significance with respect to the value of the Old Notes or
the New Notes;
which, in the sole judgment of the Company in any case, and regardless of the
circumstances (including any action by the Company) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
The Huntington National Bank has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at one of the addresses set forth below.
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Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
THE HUNTINGTON NATIONAL BANK
By Mail/Overnight Courier: By Facsimile Transmission: By Hand:
(216) 344-6584 In Cleveland, Ohio:
The Huntington National Bank Confirm by Telephone: The Huntington National Bank
917 Euclid Avenue (216) 344-6662 917 Euclid Avenue
Cleveland, Ohio 44115 Cleveland, Ohio 44115
Attention: Corporate Trust CM23 Attention: Corporate Trust CM23
In New York, New York:
The Huntington National Bank
In care of The Bank of New York
Drop Window Services
101 Barclay Street
New York, New York 10286
</TABLE>
DELIVERY OF LETTERS OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer, and will not make any payment to brokers,
dealers, or others soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the
Exchange Offer will be paid by the Company and are estimated in the aggregate
to be $50,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold, unless registered under the Act, except pursuant to an exemption
from, or in a transaction not subject to, the Act and applicable state
securities laws. The Company has no obligation to, and does not currently
anticipate that it will, register the offer and sale of the Old Notes under
the Act. Based on interpretations by the Staff of the Commission, set forth in
certain "no-action" letters issued to third parties and unrelated to the
Company and the Exchange Offer, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Act) without compliance with the registration and prospectus
delivery provisions of the Act provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders have no
intention, nor any arrangement with any person, to participate in the
distribution of such New Notes. If any Holder
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has any arrangement or understanding with respect to the distribution of the
New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could
not rely on the applicable interpretations of the Staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989) or
similar letters and (ii) must comply with the registration and prospectus
delivery requirements of the Act in connection with any resale transaction. A
broker-dealer holding Old Notes may participate in the Exchange Offer provided
that it acquired the Old Notes for its own account as a result of
market-making or other trading activities. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes must acknowledge that
it will deliver a prospectus meeting the requirements of the Act in connection
with any resale of such New Notes since such broker-dealer may be considered a
statutory underwriter. Such prospectus may be the prospectus relating to the
Exchange Offer only if it contains a plan of distribution with respect to such
resale transactions (but need not name the broker-dealer or disclose the
amount of New Notes held by the broker-dealer). See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
does not currently intend to register or qualify the sale of the New Notes in
any such jurisdictions.
DESCRIPTION OF THE NOTES
The Old Notes have been, and the New Notes will be, issued under the
indenture dated as of April 3, 1996 (the "Indenture") between the Company and
the Trustee. The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and to all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions."
GENERAL
The New Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. Principal of,
premium, if any, and interest on the Notes will be payable, and the Notes will
be transferable, at the corporate trust office or agency of the Exchange Note
Trustee in the City of New York maintained for such purposes at 114 West 47th
Street, New York, New York 10036-1532. No service charge will be made for any
registration of transfer or exchange of the Notes, except for any tax or other
governmental charge that may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The New Notes will be unsecured obligations of the Company, limited to
$48,750,000 aggregate principal amount, and will mature on September 1, 2001.
Interest on the Notes will accrue at the rate of 11 1/8% per annum and will be
payable semi-annually on March 1 and September 1, commencing September 1, 1996
to the holders of record of Notes at the close of business on the February 15
and August 15 immediately preceding such interest payment date. Interest on
the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the Issue Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Interest on overdue principal and (to the extent permitted by law) on overdue
installments of interest, will accrue at the rate of interest borne by the
Notes.
REDEMPTION
Optional Redemption. The Notes will be redeemable, in whole or in
part, at the option of the Company, if redeemed during the 12-month period
beginning on June 1 of the years indicated below at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued
and unpaid interest to the redemption date:
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Year Percentage
---- ----------
1995........................................ 103.438%
1996........................................ 101.719%
1997 and thereafter......................... 100.000%
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of Notes for redemption will be made by the
Note Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Note Trustee shall deem fair and appropriate,
provided, however, that no Notes of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and
after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption.
CHANGE OF CONTROL
In the event of a Change of Control (the date of such occurrence being
the "Change of Control Date"), the Company shall notify the holders in writing
of such occurrence and shall make an offer to purchase (the "Change of Control
Offer"), on a business day (the "Change of Control Payment Date") not later
than 60 days following the Change of Control Date, all Notes then outstanding
at a purchase price equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, to the Change of Control Payment Date. Notice of
a Change of Control Offer shall be mailed by the Company to the holders not
less than 25 days nor more than 45 days before the Change of Control Payment
Date. The Change of Control Offer is required to remain open for at least 20
business days and until the close of business on the business day next
preceding the Change of Control Payment Date.
The Company will comply with any tender offer rules under the Exchange
Act, which may then be applicable, including, but not limited to, Rule 14e-1,
in connection with any Change of Control Offer required to be made by the
Company to repurchase the Notes as a result of a Change of Control.
PROVISION OF FINANCIAL INFORMATION
Pursuant to the Indenture, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will submit for filing with the Commission such annual reports,
quarterly reports and other documents and distribute or cause to be
distributed to holders of the Notes copies of such annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were so subject. Such annual reports will contain consolidated
financial statements and notes thereto, together with an opinion thereon
expressed by an independent public accounting firm, and management's
discussion and analysis of financial condition and results of operations and
such quarterly reports will contain unaudited condensed consolidated financial
statements for the first three quarters of each fiscal year.
CERTAIN COVENANTS
Set forth below are certain covenants which are contained in the
Indenture.
Limitation on Additional Indebtedness. The Indenture will provide that
the Company shall not, and shall not cause or permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume, issue, guarantee or in any
manner become liable for or with respect to the payment of, any Attributable
Indebtedness or Indebtedness (including any Acquired Indebtedness) except for
(each of which shall be given independent effect):
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(a) Indebtedness of the Company under the Notes and the Indenture;
(b) Indebtedness of Subsidiaries of the Company outstanding from
time to time pursuant to the Credit Agreement not to exceed at any one time,
an amount (the "Permitted Amount") equal to, when added to the principal
amount of Indebtedness of Subsidiaries of the Company outstanding pursuant to
clause (h) below, (A) the sum of 85% of the net book value of the accounts
receivable and 50% of the net book value of the inventory of the Subsidiaries
of the Company, in each case calculated on a consolidated basis in accordance
with GAAP minus (B) the amount of Indebtedness pursuant to the Credit
Agreement prepaid after the Issue Date with the Net Cash Proceeds from an
Asset Sale pursuant to the provisions described below under "Disposition of
Proceeds of Asset Sales";
(c) Indebtedness of the Company and Subsidiaries of the Company
outstanding on the Issue Date;
(d) Indebtedness of the Company that is subordinated or pari passu
in right of payment to the Notes if, immediately after giving pro forma effect
to the incurrence thereof, the Consolidated Interest Coverage Ratio of the
Company would be equal to or greater than 2.25:1;
(e) Indebtedness of a Subsidiary of the Company issued to and held
by the Company or a Wholly- Owned Subsidiary of the Company or Indebtedness of
the Company to a Wholly-Owned Subsidiary of the Company in respect of
intercompany advances or transactions;
(f) Indebtedness represented by Interest Rate Protection Obligations
and Currency Hedging Agreements of Subsidiaries of the Company with respect to
Indebtedness of Subsidiaries of the Company (which Indebtedness is otherwise
permitted to be incurred under this covenant) to the extent the notional
principal amount of such Interest Rate Protection Obligations or Currency
Hedging Agreements, as the case may be, does not exceed the principal amount
of the Indebtedness to which such Interest Rate Protection Obligations or
Currency Hedging Agreements, as the case may be, relate;
(g) any replacements, renewals, refinancing and extensions of
Indebtedness incurred under clauses (a), (c) and (d) above, provided that (i)
any such replacement, renewal, refinancing and extension (x) shall not provide
for any mandatory redemption, amortization or sinking fund requirement in an
amount greater than or at a time prior to the amounts and times specified in
the Indebtedness being replaced, renewed, refinanced or extended and (y) shall
be contractually subordinated to the Notes at least to the extent, if at all,
that the Indebtedness being replaced, renewed, refinanced or extended is
subordinate to the Notes, (ii) any such Indebtedness of any Person must be
replaced, refinanced or extended with Indebtedness incurred by such Person or
by the Company and (iii) the principal amount of Indebtedness incurred
pursuant to this clause (g) (or, if such Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue price
of such Indebtedness) shall not exceed the sum of the principal amount (or
with respect to Indebtedness which provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof, the accreted value thereof) of
Indebtedness so replaced, renewed, refinanced or extended, plus accrued
interest, the amount of any premium required to be paid in connection with
such replacement, renewal, refinancing or extension pursuant to the terms of
such Indebtedness or the amount of any premium reasonably determined by the
Company as necessary to accomplish such replacement, renewal, refinancing or
extension by means of a tender offer or privately negotiated purchase, and the
amount of fees and expenses incurred in connection therewith; and
(h) in addition to the items referred to in clauses (a) through (g)
above, (x) Indebtedness and Attributable Indebtedness of the Company or
Subsidiaries of the Company in an aggregate principal amount not to exceed
$5,000,000 at any one time outstanding, provided that Indebtedness of
Subsidiaries of the Company shall not exceed at any one time, when added to
the principal amount of Indebtedness outstanding pursuant to the preceding
clause (b), the Permitted Amount and (y) additional Indebtedness and
Attributable Indebtedness of the Company in a aggregate principal amount not
to exceed $10,000,000 at anytime outstanding.
Limitation on Investments, Loans and Advances. The Indenture will
provide that the Company shall not make and shall not permit any of its
Subsidiaries to make any direct or indirect advance, loan, or other extension
of credit to
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(including any guarantee of a loan or other extension of credit) or investment
in, capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others or otherwise), or purchase of Capital Stock, bonds, notes,
debentures or other securities issued by, any other Person (collectively,
"Investments"), except: (i) Investments by the Company or a Subsidiary of the
Company in any Wholly- Owned Subsidiary of the Company (including any such
Investment pursuant to which a Person becomes a Wholly- Owned Subsidiary of
the Company) or in the Company by any Subsidiary of the Company; (ii)
Investments represented by receivables created or acquired in the ordinary
course of business or the settlement of such receivables in the ordinary
course of business; (iii) Investments permitted to be made pursuant to the
"Limitation on Restricted Payments" covenant below; (iv) Investments
represented by advances to employees of the Company or its Subsidiaries made
in the ordinary course of business and consistent with past business
practices; and (v) Permitted Investments.
Limitation on Restricted Payments. The Indenture will provide that the
Company shall not make, and shall not permit any of its Subsidiaries to make,
directly or indirectly, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted Payment;
(b) at the time of and after giving effect to such Restricted
Payment, the Company could incur at least $1.00 of Indebtedness pursuant to
clause (d) of the "Limitation on Additional Indebtedness" covenant above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
through and including the date of such Restricted Payment does not exceed the
sum of (1) 50% of the Company's Consolidated Net Income (or in the event such
Consolidated Net Income shall be a deficit, minus 100% of such deficit) from
and including April 1, 1996 to and including the last day of the fiscal
quarter immediately preceding the date of such Restricted Payment (the "Base
Period"), (2) 100% of the aggregate Net Proceeds received by the Company from
(x) the issue or sale, during the Base Period, of Capital Stock (other than
Disqualified Stock) of the Company, or any Indebtedness or other securities of
the Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company which has been so converted,
exercised or exchanged, as the case may be and (y) any common equity
contribution made to the Company during the Base Period plus (3) in the case
of the disposition of any Investment (other than an Investment which is a
loan) made after the Issue Date or the repayment or disposition of any loan
made after the Issue Date (other than any such Investment or loan made
pursuant to clause (i), (ii) (iv) or (v) of the "Limitation on Investments,
Loans and Advances" covenant above) an amount equal to, with respect to any
such Investment (other than an Investment which is a loan) the lesser of the
net cash proceeds received on disposition with respect to such Investment or
the initial amount of such Investment, in either case, less the cost of
disposition of such Investment and with respect to any such loan, an amount
equal to any cash received on account of (a) the repayment of principal on
such loan or (b) the disposition of such loan, less the cost of such
disposition and in each of the foregoing cases, not to exceed the principal
amount of such disposed of loan. For purposes of determining the amount
expended for Restricted Payments, cash distributed shall be valued at the face
amount thereof and property other than cash shall be valued at its Fair Market
Value.
The provisions of this covenant shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if such payment
would comply with the provisions of the Indenture at the date of the
declaration of such payment, (ii) the retirement of any shares of Capital
Stock of the Company or Indebtedness of the Company which is subordinated in
right of payment to the Notes by conversion into, or by an exchange for,
shares of Capital Stock of the Company that are not Disqualified Stock or out
of the Net Proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of other shares of Capital Stock (other than
Disqualified Stock) of the Company, (iii) the redemption or retirement of
Indebtedness of the Company which is subordinated in right of payment to the
Notes in exchange for, by conversion into, or out of the Net Proceeds of, a
substantially concurrent sale of Indebtedness of the Company which is
subordinated in right of payment to the Notes (other than to a Subsidiary of
the Company) that (x) is contractually subordinated in right of payment to the
Notes at least to the same extent that the Indebtedness being redeemed or
retired is subordinated to the Notes and (y) is permitted to be incurred in
accordance with the covenant described under "Limitation on Additional
Indebtedness" above, (iv) dividends to Waxman Industries to satisfy interest
payments on the Deferred Coupon Notes, including any Deferred Coupon Note
Refinancing Indebtedness, provided
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that any such dividend is used on the date such dividend is paid to make
interest payments on the Deferred Coupon Notes or Deferred Coupon Note
Refinancing Indebtedness, as the case may be, and provided further that no
Default or Event of Default shall have occurred and be continuing after the
payment of any such dividend (v) the redemption or retirement, or dividends to
Waxman Industries for the redemption or retirement, (by way of open market
purchase or otherwise), within 365 days of the Issue Date, of Deferred Coupon
Notes or Deferred Coupon Note Refinancing Indebtedness in an amount not to
exceed the aggregate net cash proceeds received by the Company or Barnett from
the sale of shares of Capital Stock of Barnett representing not more than
55.1% of the Barnett Common Stock pursuant to the Barnett Public Offering that
are in excess of $75.0 million, provided no Default or Event of Default shall
have occurred and be continuing after such redemption or retirement or the
payment of such dividend, as the case may be, (vi) the payment of any dividend
or distribution by the Company to Waxman Industries (A) pursuant to the Tax
Sharing Agreement, which dividend or distribution is used solely to pay income
taxes and may not exceed the lesser of (x) income taxes actually paid by
Waxman Industries (on a consolidated basis with its Subsidiaries) and (y) the
amount of income taxes which would be paid by the Company and its Subsidiaries
if they were a consolidated tax paying group filing a consolidated return and
(B) which dividend or distribution is used solely to pay taxes (other than
income taxes) actually payable by Waxman Industries; and (vii) Restricted
Payments consisting of 50% of Eligible Sale Proceeds (100% in the case of
clause (iv) above), provided no Default or Event of Default shall have
occurred and be continuing after the making of such Restricted Payment.
In determining the amount of Restricted Payments permissible under clause
(c) above, amounts expended pursuant to clauses (i), (ii), (iv) and (vii)
above shall be included as Restricted Payments.
Limitation on Liens. In addition to the restrictions described below
under "Impairment of Security Interest," the Indenture will provide that the
Company shall not, and the Company shall not permit, cause or suffer any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien of any
kind upon any of its property or assets now owned or hereafter acquired by it,
which (a) secures Indebtedness of the Company subordinated in right of payment
to the Notes, unless the Notes are secured by a Lien on such property that is
senior to such Lien or (b) secures Indebtedness of the Company which is pari
passu in right of payment with the Notes, unless the Notes are secured by a
Lien on such property that is equal and ratable with such Lien, except for
Liens existing as of the Issue Date and Permitted Liens.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture will provide that the Company shall not, and shall
not permit any Subsidiary of the Company to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective or enter into any
Agreement with any Person that would cause any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary of the Company to (a)
pay dividends, in cash or otherwise, or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or a Subsidiary
of the Company, (b) make any loans or advances to the Company or any
Subsidiary of the Company or (c) transfer any of its properties or assets to
the Company or to any Subsidiary of the Company, except, in each case, for
such encumbrances or restrictions existing under or contemplated by or by
reason of any restrictions existing under (i) the Credit Agreement as in
effect on the Issue Date, (ii) any restrictions existing under any Agreement
that refinances, replaces, amends or extends an Agreement containing a
restriction permitted by clause (i); provided that the terms and conditions of
any such restrictions are not materially less favorable to the holders of the
Notes than those under or pursuant to the Agreement being refinanced,
replaced, amended or extended or (iii) customary non-assignment or sublease
provisions of any Agreement of the Company or its Subsidiaries.
Disposition of Proceeds of Asset Sales. The Indenture will provide that
the Company shall not, and shall not permit any of its Subsidiaries to, make
any Asset Sale unless (i) such Asset Sale is for Fair Market Value and (ii)
the net proceeds therefrom consist of at least 75% cash or Cash Equivalents
(with Indebtedness of the Company or its Subsidiaries assumed by the purchaser
being counted as cash for such purposes if the Company and its Subsidiaries
are permanently released from all liability therefor).
The Company shall or shall cause its Subsidiaries to, within 360 days of
receipt of any Net Cash Proceeds from an Asset Sale, (x) apply such Net Cash
Proceeds to permanently prepay Indebtedness outstanding under the Credit
Agreement, (y) apply such Net Cash Proceeds to acquire or construct assets of
the Company or a Subsidiary of the Company in lines of business related to the
Company's and its Subsidiaries' businesses as in existence on the Issue Date
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or (z) to the extent such Net Cash Proceeds are not applied as provided in the
previous clauses (x) and (y), designate such Net Cash Proceeds as "Excess
Proceeds" subject to disposition as provided in the next succeeding paragraph;
provided, however, that (i) to the extent that the Net Cash Proceeds applied
to permanently prepay Indebtedness consist in whole or in part of Barnett Sale
Proceeds, then such Barnett Sale Proceeds may be applied to prepay such
Indebtedness to the extent required by the terms of the Credit Agreement (as
in existence on the Issue Date) and to the extent such prepayment is not so
required, such Barnett Sale Proceeds shall be used to permanently prepay such
Indebtedness and to make an offer to purchase Securities as set forth below on
a pro rata basis based on the aggregate principal amount of Indebtedness
outstanding under the Credit Agreement and the Securities outstanding, (ii) up
to $10.0 million of Barnett Sale Proceeds may be applied pursuant to clause
(x) above and not subject to the preceding clause (i) provided that any such
Barnett Sale Proceeds so applied must be applied to permanently prepay
Permitted Barnett Secured Indebtedness then outstanding.
When the aggregate amount of unutilized Excess Proceeds equals or exceeds
$2.5 million, the Company shall make an offer to repurchase an aggregate
principal amount of Notes equal to such Excess Proceeds at a price in cash
equal to 100% of the outstanding principal amount thereof plus accrued and
unpaid interest, if any, to the repurchase date. If the aggregate principal
amount of Notes tendered exceeds the amount of Excess Proceeds, the Notes
tendered will be purchased on a pro rata basis. The Company shall, subject to
the provisions described herein, be required to repurchase all Exchange Notes
validly tendered into such offer and not withdrawn. Such offer is required to
remain open for at least 20 business days. Upon completion of such offer to
repurchase, the amount of Excess Proceeds shall be reset to zero and any
unutilized Excess Proceeds may be utilized by the Company for any purpose.
The provisions of this covenant shall not apply to any Eligible Sale
Proceeds used in accordance with clause (iv) of the "Limitations on Restricted
Payments" covenant above and shall otherwise only apply to 50% of any Eligible
Sale Proceeds.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to repurchase Notes as described above.
Limitation on Transactions with Affiliates. The Indenture will provide
that the Company shall not, and shall not permit, cause, or suffer any
Subsidiary of the Company to, conduct any business or enter into any
transaction or series of transactions with or for the benefit of any of their
respective Affiliates (each an "Affiliate Transaction"), except in good faith
and on terms that are no less favorable to the Company or such Subsidiary, as
the case may be, than those that could have been obtained in a comparable
transaction on an arms' length basis from a Person not an Affiliate of the
Company or such Subsidiary. With respect to any Affiliate Transaction (and
each series of related Affiliate Transactions which are similar or part of a
common plan) involving aggregate payments or other market value in excess of
$1,000,000 the Company shall deliver an officers' certificate to the Trustee
certifying that such Affiliate Transaction (or series of related Affiliate
Transactions) complies with the foregoing provisions and that such Affiliate
Transaction (or series of related Affiliate Transactions) was approved by a
majority of the Independent Directors of the Company and the Board of
Directors of the Company as a whole. Notwithstanding the foregoing, the
restrictions set forth in this covenant shall not apply to (x) customary
directors' fees and consulting fees or (y) any Affiliate Transaction pursuant
to and in accordance with the provisions of the Tax Sharing Agreement,
Intercorporate Agreement, Barnett Intercorporate Agreement or the Trademark
License Agreements.
Limitation on Issuances and Sales of Preferred Stock by Subsidiaries. The
Indenture will provide that the Company (i) will not permit any of its
Subsidiaries to issue any Preferred Stock (other than to the Company or a
Wholly- Owned Subsidiary of the Company) and (ii) will not permit any Person
(other than the Company or a Wholly-Owned Subsidiary of the Company) to own
any Preferred Stock of any Subsidiary of the Company.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Indenture will provide that the Company shall not consolidate with or
merge with or into or sell, assign, convey, lease, transfer or otherwise
dispose of or cause or permit any Subsidiary of the Company to sell, assign,
convey, lease, transfer or otherwise dispose of all or substantially all of
the Company's and the Company's Subsidiaries'
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properties and assets (determined on a consolidated basis for the Company and
the Company's Subsidiaries taken as a whole) to any Person or Persons in a
single transaction or through a series of related transactions or permit any
of its Subsidiaries to do any of the foregoing, unless: (a) the Company shall
be the continuing Person or the Person formed by or surviving such
consolidation or merger or the Person to which such sale, assignment,
conveyance, lease, transfer or other disposition is made (the "surviving
entity") shall be a corporation organized and validly existing under the laws
of the United States or any State thereof or the District of Columbia; (b) the
surviving entity (in the case of a merger or consolidation in which the
Company is not the surviving Person or any sale, assignment, conveyance,
lease, transfer or other disposition of all or substantially all of the
Company's properties and assets) shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, all of the obligations of the Company
under the Notes and the Indenture; (c) immediately before and immediately
after giving effect to such transaction, or series of transactions (including,
without limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
no Default or Event of Default shall have occurred and be continuing; (d) the
Company or the surviving entity (in the case of a merger or consolidation in
which the Company is not the surviving Person or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all
of the Company's properties and assets) shall immediately after giving effect
to such transaction or series of transactions (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions) have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction or series of transactions; (e)
immediately after giving effect to such transaction or series of transactions,
the Company or the surviving entity (in the case of a merger or consolidation
in which the Company is not the surviving Person or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all
of the Company's properties and assets) could incur $1.00 of Indebtedness
pursuant to clause (d) of the "Limitation on Additional Indebtedness" covenant
described above; and (f) the Company or the surviving entity (in the case of a
merger or consolidation in which the Company is not the surviving Person or
any sale, assignment, conveyance, lease, transfer or other disposition of all
or substantially all of the Company's properties and assets) shall have
delivered to the Trustee an Officer's Certificate stating that such
consolidation, merger, sale, assignment, conveyance, lease, transfer or other
disposition and, if a supplemental indenture is required in connection with
such transaction or series of transactions, such supplemental indenture
complies with this covenant and that all conditions precedent in the Indenture
relating to the transaction or series of transactions have been satisfied.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) default in the payment of any interest on the Notes when it
becomes due and payable, and continuance of any such default for a period of
30 days;or
(ii) default in the payment of the principal of, or premium, if any,
on the Notes when due (including a default in payment upon an offer to
purchase required to be made by the Indenture); or
(iii) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i) or (ii) above), and
continuance of such default or breach for a period of 30 days after written
notice to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the outstanding
Notes; or
(iv) failure by the Company or any of its Subsidiaries (a)
to make any payment when due with respect to any other Indebtedness under one
or more classes or issues of Indebtedness which one or more classes or issues
of Indebtedness are in an aggregate principal amount of $5,000,000 or more; or
(b) to perform any term, covenant, condition, or provision of one or more
classes or issues of Indebtedness which one or more classes or issues of
Indebtedness are in an aggregate principal amount of $5,000,000 or more, which
failure, in the case of this clause (b), results in an acceleration of the
maturity thereof; or
(v) one or more judgments, orders or decrees for the payment of
money in excess of $5,000,000, either individually or in an aggregate amount,
shall be entered against the Company or any of its Subsidiaries or any
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properties of the Company or any of its Subsidiaries and shall not be
discharged and there shall have been a period of 60 days during which a stay
of enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Material Subsidiaries shall have occurred.
If an Event of Default (other than an Event of Default specified in
clause (vi) above with respect to the Company) occurs and is continuing, then
the Trustee or the holders of at least 25% in aggregate principal amount of
the outstanding Notes may, by written notice, and the Trustee upon the request
of the holders of not less than 25% in aggregate principal amount of the
outstanding Notes shall, declare the principal of, premium, if any, and
accrued interest on, all the Notes to be due and payable immediately. Upon any
such declaration, such principal, premium, if any, and accrued interest shall
become due and payable immediately. If an Event of Default specified in clause
(vi) above with respect to the Company occurs and is continuing, then the
principal of, premium, if any, and accrued interest on, all the Notes shall
ipso facto become and be immediately due and payable without any declaration
or other act on the part of the Note Trustee or any holder.
After a declaration of acceleration, the holders of a majority in
aggregate principal amount of outstanding Notes may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default
have been cured or waived, other than nonpayment of principal of, premium, if
any, and accrued interest on the Notes that has become due solely as a result
of such acceleration and if the rescission of acceleration would not conflict
with any judgment or decree. The holders of a majority in aggregate principal
amount of the outstanding Notes also have the right to waive past defaults
under the Indenture except a default in the payment of the principal of,
premium, if any, or interest on any Note, or in respect of a covenant or a
provision which cannot be modified or amended without the consent of all
holders.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of
at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 15 days after receipt of such notice and the Trustee has not
within such 15-day period received directions inconsistent with such written
request by holders of a majority in aggregate principal amount of the
outstanding Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or accrued interest on, such Note on or after
the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee is not under any obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders unless
such holders shall have offered to such Trustee reasonable indemnity. Subject
to certain provisions concerning the rights of the Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust, or power conferred
on the Trustee.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect
to the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain agencies in respect of Notes. The Company may
at any time terminate its obligations under certain covenants set forth in the
Indenture, some of which are described under "Certain Covenants" above, and
any omission to comply with such obligations shall not constitute a Default or
an Event of Default with respect to the Notes issued under the Indenture
("covenant defeasance"). In order to exercise either defeasance or covenant
defeasance, the Company must irrevocably deposit in trust with the Trustee,
for the benefit of the holders of the Notes, money or U.S. government
obligations, or
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a combination thereof, in such amounts as will be sufficient to pay the
principal of, and premium, if any, and accrued interest on the Notes to
redemption or maturity, as the case may be, and comply with certain other
conditions, including the delivery of opinions as to certain tax and
bankruptcy matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of
Notes) as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for the payment of which money has theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation and the Company has paid all sums
payable by it under the Indenture; or (b)(i) all such Notes not theretofore
delivered to the Trustee for cancellation have become due and payable or have
been called for redemption and the Company has irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose an
amount of money sufficient to pay and discharge the entire indebtedness on the
Notes not theretofore delivered to the Trustee for cancellation, for
principal, premium, if any, and accrued interest to the date of such deposit
or redemption, as the case may be; (ii) the Company has paid all sums payable
by it under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity or the redemption date, as the case may be. In addition,
the Company must deliver an Officers' Certificate and an Opinion of Counsel
stating that all conditions precedent to satisfaction and discharge have been
complied with.
AMENDMENTS AND WAIVERS
From time to time the Company, when authorized by resolution of its Board
of Directors, and the Trustee may, without the consent of the holders of the
Notes, amend, waive or supplement the Indenture or the Notes for certain
specified purposes, including, among other things, curing ambiguities, defects
or inconsistencies, maintaining the qualification of the Indenture under the
Trust Indenture Act or making any change that does not adversely affect the
rights of any holder. Other amendments and modifications of the Indenture or
the Notes may be made by the Company and the Trustee with the consent of the
holders of not less than a majority of the aggregate principal amount of the
outstanding Notes; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount outstanding of, extend the fixed
maturity of, or alter the redemption provisions of, the Notes, (ii) change the
currency in which any Notes or any principal, premium or the accrued interest
thereon is payable, (iii) reduce the percentage in principal amount
outstanding of Notes, who must consent to an amendment, supplement or waiver
or consent to take any action under the Indenture or the Notes, (iv) impair
the right to institute suit for the enforcement of any payment on or with
respect to the Notes, (v) waive a default in payment with respect to the
Notes, (vi) reduce the rate or extend the time for payment of interest on the
Notes or (vii) following the mailing of a Change of Control Offer, modify the
provisions of the Indenture with respect to such Change of Control Offer in a
manner adverse to any holder.
REGARDING THE TRUSTEE
United States Trust Company of New York will serve as Trustee under the
Indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means with respect to any Person, Indebtedness of
another Person existing at the time such other Person becomes a Subsidiary of
such Person or is merged with or into such Person or a Subsidiary of such
Person including, without limitation, Indebtedness incurred in connection
with, or in anticipation of, such other Person becoming a Subsidiary of such
Person or the merger of such other Person with or into such Person.
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"Affiliate" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of
transfer of cash or other property to others or payment for property or
services for the account or use of others, or otherwise) to, or purchase or
acquisition of Capital Stock in, any other Person by the Company or any of its
Subsidiaries, in either case pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with
or into the Company or any of its Subsidiaries or (ii) any acquisition by the
Company or any of its Subsidiaries of the assets of any Person which
constitute substantially all of an operating unit or business of such Person.
"Asset Sale" means with respect to any Person any direct or indirect
sale, conveyance, transfer, lease or other disposition to any other Person
other than such Person or a Subsidiary of such Person, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Subsidiary of
such Person (whether structured as a sale, issuance or other disposition by
such Person or a Subsidiary of such Person) or (ii) any other property or
asset of such Person (other than cash or Cash Equivalents) or any Subsidiary
of such Person, in each case, other than inventory in the ordinary course of
business and other than isolated transactions which do not exceed $1,000,000
individually. For the purposes of this definition, the term "Asset Sale" shall
not include (x) any disposition of properties and assets of such Person or any
Subsidiary of such Person that is governed under and complies with the
requirements set forth in "Consolidation, Merger, Conveyance, Transfer or
Lease" above or (y) any sale by the Company of its Capital Stock.
"Attributable Indebtedness" means, in respect of a Sale/Leaseback
Transaction, as at the time of determination, the present value (discounted at
the interest rate borne by the Notes compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Barnett Common Stock" means the common stock, $.01 par value per share,
of Barnett.
"Barnett Intercorporate Agreement" means the Intercorporate Agreement
among Waxman Industries, the Company, Barnett, Consumer Products and WOC as in
existence as of the consummation of the Barnett Public Offering.
"Barnett Public Offering" means the initial public offering of Barnett
Common Stock.
"Barnett Sale Proceeds" means the net proceeds from the sale of Barnett
Common Stock.
"Board Resolution" means with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such
Person, to have been duly adopted by the Board of Directors of such Person and
to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with
GAAP.
"Cash Equivalents" means, at any time (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii)
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certificates of deposit or acceptances with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than
$500,000,000; (iii) commercial paper with a maturity of 180 days or less
issued by a corporation (except an Affiliate of the Company) organized under
the laws of any state of the United States or the District of Columbia and
rated at least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's
Investors Service, Inc.; and (iv) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition; provided, however, that
the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions with Securities
Dealers and Others, as adopted by the Comptroller of the Currency.
"Change of Control" means (i) the direct or indirect, sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or entity or group (as such term is used in Section
13(d)(3) of the Exchange Act) (a "Group of Persons") other than Permitted
Holders, (ii) the merger or consolidation of the Company or Waxman Industries
with or into another corporation with the effect that the then existing
shareholders of the Company or Waxman Industries, as the case may be, together
with the Permitted Holders beneficially own (within the meaning of Rule 13d-3
under the Exchange Act) securities representing less than 50% of the Voting
Power of the surviving corporation of such merger or the corporation resulting
from such consolidation and do not otherwise have the right or ability by
contract or otherwise to elect a majority of the Board of Directors of such
surviving corporation, (iii) the replacement of a majority of the Board of
Directors of the Company or Waxman Industries from the directors who
constituted such Board of Directors on the Issue Date, and such replacement
shall not have been approved by a majority of such Board of Directors then
still in office who either were (x) members of such Board of Directors on the
Issue Date or (y) whose election as a member of such Board of Directors was
approved in the manner provided in this clause (iii) or (iv) a Person or Group
of Persons shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company or Waxman Industries representing 35% or more of the
Voting Power of the Company or Waxman Industries, as the case may be, and, at
such time, Permitted Holders are not the beneficial owners (as so defined) of
securities representing a greater percentage of such Voting Power and do not
otherwise have the right or ability by contract or otherwise to elect a
majority of the Board of Directors of the Company or Waxman Industries, as the
case may be.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period increased
(to the extent deducted in determining Consolidated Net Income) by the sum of
the following for such period: (i) all income taxes of such Person paid or
accrued according to GAAP for such period (other than income taxes
attributable to extraordinary, unusual or non-recurring gains); (ii)
Consolidated Interest Expense of such Person for such period; (iii)
depreciation expense of such Person for such period; (iv) amortization expense
of such Person for such period including, without limitation, amortization of
capitalized debt issuance costs; and (v) any other non-cash charges of such
Person for such period (excluding any non-cash charge to the extent that it
requires an accrual of or a reserve for cash disbursements for any future
period).
"Consolidated Interest Coverage Ratio" means, with respect to any Person,
the ratio of (i) Consolidated Cash Flow of such Person for the four full
fiscal quarters for which financial statements are available that immediately
precede the date of the transaction or other circumstances giving rise to the
need to calculate the Consolidated Interest Coverage Ratio (the "Transaction
Date") to (ii) Consolidated Interest Expense of such Person and the aggregate
amount of dividends or other distributions declared or paid on Capital Stock
(other than Common Stock) of such Person and its Subsidiaries, in each case
for such four full fiscal quarter period. For purposes of this definition,
"Consolidated Cash Flow" and the items referred to in the preceding clause
(ii) shall be calculated after giving effect on a pro forma basis for the
period of such calculation to (i) the incurrence or retirement of any
Indebtedness of such Person or any of its Subsidiaries, other than the
incurrence or repayment of Indebtedness in the ordinary course of business
pursuant to working capital or revolving credit facilities, at any time during
the period (the "Reference Period") (A) commencing on the first day of the
four full fiscal quarter period for which financial statements are available
that precedes the Transaction Date and (B) ending on and including the
Transaction Date, including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation, as if such
incurrence or retirement occurred on the first day of the Reference Period;
provided, that if such Person or any of its Subsidiaries directly or
indirectly guarantees
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Indebtedness of a third Person, the above clause shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or Subsidiary had
directly incurred such guaranteed Indebtedness and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of the Company or
any Subsidiary of the Company (including any Person who becomes a Subsidiary
of the Company as a result of the Asset Acquisition) incurring Acquired
Indebtedness) occurring during the Reference Period and any retirement of
Indebtedness in connection with such Asset Sales, as if such Asset Sale or
Asset Acquisition and/or retirement occurred on the first day of the Reference
Period. Furthermore, in calculating the denominator (but not the numerator) of
this "Consolidated Interest Coverage Ratio," (1) interest on Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (2) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate based upon a factor of a
prime or similar rate shall be deemed to have been in effect; and (3)
notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Rate Protection Obligations, shall be deemed to have
accrued at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (a) the cash and non-cash interest
expense of such Person and its Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP (net of any interest income)
consistently applied, including, without limitation, (w) any amortization of
debt discount, (x) the net cost under Interest Rate Protection Obligations and
Currency Hedging Agreements insofar as they relate to interest, (y) the
interest portion of any deferred payment obligation and (z) all accrued
interest, and (b) the aggregate amount of the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Subsidiaries during such period as determined
on a consolidated basis in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person")
in which the Person in question or one of its Subsidiaries has a joint
interest with one or more other Persons (which interest does not cause the Net
Income of such other Person to be consolidated into the Net Income of the
Person in question in accordance with GAAP) shall be included only to the
extent of the amount of dividends or distributions actually paid to the Person
in question or the Subsidiary, (b) the Net Income of any Subsidiary of the
Person in question that is subject to any restriction or limitation on the
payment of dividends or the making of other distributions (including
limitations resulting from the ownership of less than 100% of the Capital
Stock of such Subsidiary) shall be excluded to the extent of such restriction
or limitation, (c)(i) the Net Income (or loss) of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition and (ii) any net gain or loss resulting from an Asset Sale by the
Person in question or any of its Subsidiaries shall be excluded, and (d)
extraordinary gains and losses and any one-time increase or decrease to Net
Income recorded because of the adoption of new accounting policies, practices
or standards required or permitted by generally accepted accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the consolidated equity represented by the shares of such
Person's Capital Stock (other than Disqualified Stock) at such date, as
determined on a consolidated basis in accordance with GAAP.
"Covered Amount" means with respect to any disposition of Capital Stock
of Barnett or any Asset Sale involving WOC Inc. an amount equal to the excess
of (x) the aggregate fair value of the Capital Stock of Barnett owned by the
Company and its Subsidiaries immediately upon consummation of such disposition
or Asset Sale less the aggregate principal amount of any outstanding Permitted
Barnett Secured Indebtedness after taking into account the application of the
proceeds of such disposition or Asset Sale over (y) the product of (i) the
aggregate principal amount of Notes and other Indebtedness incurred after the
Issue Date that is pari passu or structurally senior in right of payment
(other than Indebtedness under the Credit Agreement) to the Notes and is
outstanding after taking into account the application of the proceeds of such
disposition or Asset Sale and (ii) two (2).
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"Credit Agreement" means the credit agreement entered into between the
Company, certain of the Subsidiaries of the Company, the lenders listed
therein and Citicorp USA, Inc., as agent, providing for working capital and
other financing, as the same may at any time be amended, amended and restated,
supplemented or otherwise modified, including any refinancing, refunding,
replacement or extension thereof which provides for working capital and other
financings, whether by the same or any other lender or group of lenders.
"Currency Hedging Obligations" means with respect to any Person, the
obligations and/or rights of such Person under currency hedging arrangements
designed to protect such Person against currency fluctuations.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Deferred Coupon Notes" means Waxman Industries' $92,797,000 aggregate
principal amount at maturity of 12 3/4% Deferred Coupon Notes due June 1,
2004.
"Deferred Coupon Note Refinancing Indebtedness" means any Indebtedness
the net proceeds of which are used entirely to refinance, in whole or in part,
the Deferred Coupon Notes provided that (i) such Indebtedness does not accrue
interest prior to June 1, 1999, (ii) after June 1, 1999 such Indebtedness does
not accrue interest at a rate per annum in excess of the rate per annum that
the Deferred Coupon Notes, as in existence on the Issue Date, accrue interest
and (iii) such Indebtedness does not provide for any mandatory redemption,
amortization or sinking fund requirement earlier than six months after the
final maturity of the Notes.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes.
"Eligible Sale Proceeds" means an amount equal to the excess of (i) the
net cash proceeds received from any disposition of Capital Stock of Barnett or
any Asset Sale involving WOC over (ii) the Covered Amount.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither
of whom is under undue pressure or compulsion to complete the transaction.
With respect to any Person, Fair Market Value shall be determined by the Board
of Directors of such Person (and with respect to the Company or a Subsidiary
of the Company, a majority of the Independent Directors of the Company) acting
in good faith and shall be evidenced by a Board Resolution delivered to the
Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination.
"Indebtedness" means, with respect to any Person, without duplication,
(i) any liability, contingent or otherwise, of such Person (A) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a portion thereof), (B) evidenced by a note,
debenture or similar instrument or letter of credit (including purchase money
obligations but excluding undrawn documentary letters of credit for trade
payables arising in the ordinary course of business) or (C) for the payment of
money relating to a Capitalized Lease Obligation or other obligation relating
to the deferred purchase price of property (other than trade payables or
accrued liabilities arising in the ordinary course of business); (ii) any
liability of others of the kind described in the preceding clause (i) which
the Person has guaranteed or which is otherwise its legal liability; (iii) any
obligation secured by a lien to which the property or assets of such Person
are subject, whether or not the obligations secured thereby shall have been
assumed by or shall otherwise be such Person's legal liability (the amount of
such obligation being deemed to be the lesser of the fair value of such
property or asset or the amount of the obligation so secured); and (iv) any
and all deferrals, renewals, extensions
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and refundings of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clause (i), (ii) or
(iii).
"Independent Director" means any director that (i) is not and has not
been an officer or employee of Waxman Industries or any of its Affiliates,
(ii) does not have any relationship that, in the opinion of the Board of
Directors of the Company (exclusive of any such Independent Director), would
interfere with his/her exercise of independent judgment in carrying out the
responsibilities of directors and (iii) with respect to any transaction or
series of related transactions, does not have any material direct or indirect
financial interest in or with respect to such transaction or series of related
transactions.
"Intercorporate Agreement" means the Intercorporate Agreement among
Waxman Industries, the Company, Barnett, Consumer Products and WOC dated as of
May 20, 1994, as amended to date.
"Interest Rate Protection Obligations" means the obligations and/or
rights of any Person pursuant to any arrangement with any other Person,
designed to protect such Person against fluctuations in interest rates,
whereby, directly or indirectly, such Person is entitled to receive from time
to time periodic payments calculated by applying either a floating or a fixed
rate of interest on a stated notional amount in exchange for periodic payments
made by such Person calculated by applying a fixed or a floating rate of
interest on the same notional amount and shall include without limitation,
interest rate swaps, caps, floors, collars and similar agreements.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, claim, hypothecation, assignment for security, deposit
arrangement or preference or other security Agreement of any kind or nature
whatsoever. For purposes of the Indenture, a Person shall be deemed to own
subject to a Lien any property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale Agreement, capital
lease or other title retention Agreement.
"Material Subsidiary" means, with respect to any Person, any Subsidiary
of such Person which would be a "significant subsidiary" pursuant to Article
1-02 of Regulation S-X.
"Net Cash Proceeds" means, with respect to any Asset Sale the proceeds
thereof in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents net of (i) brokerage commissions and other reasonable fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale; (ii) provisions for all taxes payable within one
year as a result of such Asset Sale; (iii) payments made to retire
Indebtedness secured by the assets subject to such Asset Sale to the extent
required pursuant to the terms of such Indebtedness; (iv) appropriate amounts
to be provided by the Company or any Subsidiary of the Company, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any of its
Subsidiaries, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, provided, however, that the
amount of any such reserve at such time that such amount is no longer required
to be provided as a reserve in accordance with GAAP and is not applied to the
liability for which such reserve was established shall be deemed Net Cash
Proceeds; and (v) any amount required to be paid to any Person owning a
beneficial interest in the property or assets sold in an amount proportionate
to such beneficial interest.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person and its Subsidiaries determined in accordance
with GAAP.
"Net Proceeds" means with respect to any Person, (a) in the case of any
sale of Capital Stock by such Person or common equity contribution to such
Person, the aggregate net cash proceeds received by such Person after payment
of expenses, commissions and the like, if any, incurred in connection
therewith, (b) in the case of the issuance of any Indebtedness by such Person,
the aggregate net cash proceeds received by such Person, after payment of
expenses, commissions and the like incurred in connection therewith, or (c) in
the case of any exchange, exercise, conversion or surrender of outstanding
securities of any kind of the Company for or into shares of Capital Stock of
the Company which is not Disqualified Stock, the net cash proceeds received by
the Company upon such exchange, exercise,
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conversion or surrender (plus, with respect to the issuance of any such
securities after the Issue Date, the net cash proceeds received by such person
upon the issuance of such securities), less any and all payments made to the
holders, e.g., on account of fractional shares, and less all expenses,
commissions and the like incurred by the Company in connection therewith.
"Permitted Barnett Secured Indebtedness" means Indebtedness of the
Company or any of its Subsidiaries in an aggregate principal amount not to
exceed $5.0 million that is secured by a Lien described under clause (h) of
the definition of "Permitted Liens" less the principal amount of Permitted
Barnett Secured Indebtedness permanently prepaid pursuant to the "Disposition
of Proceeds of Asset Sales" covenant.
"Permitted Holders" means Armond Waxman, Melvin Waxman, trusts for the
benefit of any of Armond Waxman, Melvin Waxman or members of their families,
the heirs of or administrators or executors for the respective estates of
Armond Waxman or Melvin Waxman or any Person, entity or group of Persons
controlled by any of the foregoing.
"Permitted Investments" means (i) obligations of the United States
government due within one year; (ii) certificates of deposit or Eurodollar
deposits due within one year with a commercial bank having capital funds of at
least $500,000,000 or more; (iii) commercial paper rated at least A-1 by
Standard & Poor's Corporation or at least P-1 by Moody's Investors Service,
Inc.; (iv) debt of any state or political subdivision that is rated among the
two highest rating categories obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc. and is due within one year; (v)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States, in each case maturing within one year from the
date of acquisition; provided, however, that the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions with Securities Dealers and Others, as adopted by the
Comptroller of the Currency; and (vi) Investments represented by Interest Rate
Protection Obligations and Currency Hedging Agreements.
"Permitted Liens" means, with respect to any Person, any Lien arising by
reason of (a) any judgment, decree or order of any court, so long as such Lien
is being contested in good faith and is adequately bonded, and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired; (b)
taxes, assessments, governmental charges or claims not yet delinquent or which
are being contested in good faith; (c) security for payment of workers'
compensation or other insurance or social security legislation; (d) security
for the performance of tenders, contracts (other than contracts for the
payment of money) or leases (excluding any Capitalized Lease Obligations); (e)
deposits to secure public or statutory obligations, or in lieu of surety,
performance or appeal bonds, entered into in the ordinary course of business;
(f) Liens arising by operation of law in favor of carriers, warehousemen,
landlords, mechanics, materialmen, laborers, employees or suppliers, incurred
in the ordinary course of business for sums which are not yet delinquent or
are being contested in good faith by negotiations or by appropriate
proceedings which suspend the collection thereof; (g) easements,
rights-of-way, zoning and similar covenants and restrictions and other similar
encumbrances or title defects which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of such Person or any of its Subsidiaries; (h) Liens on up to
$10.0 million fair value of Barnett Common Stock provided such Liens secure
not more than $5.0 million of Permitted Barnett Secured Indebtedness; and (i)
Liens arising in the ordinary course of business in favor of custom and
revenue authorities to secure payment of custom duties.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, or
government or agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
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"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock), and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Wholly-Owned Subsidiary of the
Company), (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Subsidiaries, (iii)
the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Indebtedness of the Company which is subordinated in right of payment
to the Notes (other than Indebtedness of the Company acquired in anticipation
of satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of acquisition) and
(iv) the making of any Investment other than pursuant to clause (i), (ii),
(iv) or (v) of the "Limitation on Investments, Loans and Advances" covenant
above.
"Senior Secured Notes" means the 12 1/4% Fixed Rate Senior Secured Notes
due September 1, 1998 and Floating Rate Senior Secured Notes due September 1,
1998 of Waxman Industries.
"Subsidiary" means with respect to any Person (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly,
owned by such Person, by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person or (ii) any other Person
(other than a corporation) in which such Person, one or more Subsidiaries of
such Person or such Person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof, has at least a
majority ownership interest.
"Tax Sharing Agreement" means the Tax Sharing Agreement among Waxman
Industries and certain of its subsidiaries, dated as of May 20, 1994, as in
existence on the Issue Date.
"Trademark License Agreements" means the Trademark License Agreements
among certain of the Operating Companies dated as of May 20, 1994, as in
existence on the Issue Date.
"Voting Power" means, with respect to any Person, the power under
ordinary circumstances pursuant to the ownership of shares of any class or
classes of Capital Stock to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or
not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly-Owned Subsidiary" means with respect to any Person any Subsidiary
of such Person, 100% of the Capital Stock of which (other than shares of
Capital Stock representing any director's qualifying shares or investments by
foreign nationals mandated by applicable law) is owned by such Person, by a
Wholly-Owned Subsidiary of such Person or by such Person and one or more
Wholly-Owned Subsidiaries of such Person.
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
THE RESTATED CREDIT AGREEMENT
In connection with the Barnett Public Offering, the Company entered into
the Restated Credit Agreement that is an approximately one year secured credit
facility providing for revolving credit advances of up to $25.0 million and
term loans of up to $5.0 million ("Restated Term Loans") and a release of
Barnett from such lending arrangements. As a result of the limited duration of
the Restated Credit Agreement, the Company is currently negotiating with
respect to a refinancing of such credit facility. Although the Company
believes, based on discussions to date, that it will be able to refinance the
Restated Credit Agreement before its expiration, there can be no assurance
that it will be able to do so or as to the terms of any such refinancing it is
able to obtain.
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Revolving credit advances under the Restated Credit Agreement are subject
to borrowing base formulas and will bear interest at the per annum rate of
1.5% plus the highest of (a) the prime rate of Citibank, N.A., (b) the federal
funds rate plus 0.5% and a formula with respect to three month certificates of
deposit of major United States money market banks or (b) LIBOR plus 3.0%. The
Restated Credit Agreement includes a letter of credit subfacility of $4.0
million. Restated Term Loans bear interest at a rate per annum equal to 2.0%
over the interest rate applicable to revolving credit advances under the
Restated Credit Agreement. Borrowings under the Restated Credit Agreement are
secured by the accounts receivable, inventory, certain general intangibles and
unencumbered fixed assets of Consumer Products and WOC and 65% of the capital
stock of one subsidiary of TWI and 100% of the capital stock of another such
subsidiary. In addition, Restated Term Loans are also secured by a pledge of
$10.0 million of Barnett Common Stock owned by Waxman USA. The Restated Credit
Agreement requires the Operating Companies to maintain cash collateral
accounts into which all available funds are deposited and applied to service
the facility on a daily basis. The Restated Credit Agreement prevents
dividends and distributions by the Operating Companies except in certain
limited instances including, so long as there is no Default or Event of
Default, and the Company is in compliance with certain financial covenants,
the payment of interest on the Senior Subordinated Notes and Exchange Notes,
and contains customary negative, affirmative and financial covenants and
conditions.
The Restated Credit Agreement contains only the events of default
contained in the Operating Companies Credit Facility, which include the
following: (i) any Operating Company shall fail to make any payment of
principal or interest or any other amount due under the agreements related to
the Restated Credit Agreement or fail to perform any covenant (after the
expiration of any applicable grace period) thereunder, or any representation
or warranty made in connection therewith shall prove to have been incorrect in
any material respect when made or deemed made; (ii) the Company or any of its
subsidiaries shall fail to pay any indebtedness having a principal amount of
$5,000,000 or more; or any other event shall occur or condition shall exist
under any Agreement or instrument relating to any such indebtedness, if the
effect of such event or condition is to accelerate, or to permit the
acceleration of (after the expiration of any applicable period of grace), the
maturity of such indebtedness; or any such indebtedness shall become or be
declared to be due and payable, or required to be repaid (other than by a
regularly scheduled required prepayment), or the Company or any of its
subsidiaries shall be required to repurchase or offer to repurchase such
indebtedness, prior to the stated maturity thereof; (iii) certain events of
bankruptcy with respect to the Company or any of its subsidiaries; (iv) there
shall occur any Change of Control (as defined in the Restated Credit
Agreement; and (v) there shall occur a Material Adverse Change (as defined in
the Restated Credit Agreement) or an event which would have a Material Adverse
Effect (as defined in the Restated Credit Agreement).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain income tax consequences is based on
laws, regulations, rulings and decisions now in effect, all of which are
subject to change, possibly on a retroactive basis. The discussion does not
cover all aspects of federal taxation that may be relevant to, or the actual
tax effect that any of the matters described herein will have on, particular
Holders, and does not address state, local, foreign or other tax laws. Certain
Holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations, nonresident aliens,
taxpayers subject to the alternative minimum tax and persons in special
situations such as those that hold the Old Notes or New Notes as part of a
hedging or conversion transaction or straddle) may be subject to special rules
not discussed below. The description assumes that Holders of the New Notes
will hold the New Notes as "capital assets" (generally, property held for
investment purposes) within the meaning of Section 1221 of the Code. EACH
HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR IN DETERMINING THE FEDERAL, STATE,
LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF THE EXCHANGE
OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES.
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EXCHANGE OF NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange
Offer should not be treated as an exchange or other taxable event for federal
income tax purposes because, under regulations proposed by the United States
Treasury, the New Notes should not be considered to differ materially in kind
or extent from the Old Notes. Rather, the New Notes received by a Holder
should be treated as a continuation of the Old Notes in the hands of such
Holder. As a result, there should be no federal income tax consequences to
Holders who exchange Old Notes for New Notes pursuant to the Exchange Offer
and any such Holder should have the same adjusted basis and holding period in
the New Notes as it had in the Old Notes immediately before the exchange.
HOLDING AND DISPOSITION OF NOTES
Stated Interest. Holders of New Notes will include stated interest in
gross income in accordance with their methods of accounting.
Original Issue Discount. If, as anticipated, neither the Old Notes nor
the Senior Subordinated Notes are considered to be Publicly Traded (and
assuming that the Old Notes are not considered to have been issued in a
potentially abusive transaction), with the result that the issue price of the
Old Notes equals their principal amount, the New Notes, as a continuation of
the Old Notes, will not be considered to bear OID. In the event that the issue
price is otherwise determined, the New Notes will be considered to bear OID to
the extent that their principal amount exceeds their issue price at the time
of the issuance of the Old Notes (provided that such excess is not less than
1/4 of 1% multiplied by the product of the principal amount and the number of
complete years to maturity of the Old Notes). Each holder of a New Note will
be required to include in gross income for each taxable year the sum of the
daily portions of OID attributable to each day during the taxable year in
which such holder held the New Notes. Such daily portion is determined by
allocating to each day a ratable portion of the OID allocable to the accrual
period in which such day is included. The amount of OID allocable to each full
accrual period is the product of the adjusted issue price of the New Notes at
the beginning of such accrual period and the yield to maturity of the New
Notes, less the amount of stated interest allocable to the accrued period. The
adjusted issue price of a New Note at the beginning of an accrual period is
equal to its issue price, increased by any prior accruals of OID and decreased
by the amount of any payments previously made on the New Notes, other than
payments of stated interest.
Disposition of New Notes. If a New Note is redeemed, sold or otherwise
disposed of, a Holder thereof generally will recognize gain or loss equal to
the difference between the amount realized on the redemption, sale or other
disposition of such New Note and such Holder's adjusted basis in the New Note.
A Holder's tax basis in a New Note will be increased by the amount of any OID
that is includible in such Holder's income. Subject to the market discount
rules discussed below, such gain or loss will be capital gain or loss and will
be long-term capital gain or loss if, on the date of the sale, the Holder has
a holding period for the New Notes (which would include the holding period of
the Old Notes) of more than one year.
Market Discount. Under the market discount rules of the Code, an
exchanging Holder (other than a Holder who made the election described below)
who purchased an Old Note with "market discount" (generally defined as the
amount by which the adjusted issue price of the Old Note on the Holder's date
of purchase exceeds the Holder's purchase price) will be required to treat any
gain recognized on the redemption, sale or other disposition of the New Note
received in the exchange as ordinary income to the extent of the market
discount that accrued during the holding period of such New Note (which would
include the holding period of the Old Note). Further, the Code requires that
partial principal payments on a market discount bond be included in gross
income to the extent that such payments do not exceed the accrued market
discount on such bond. A Holder of an Old Note who has acquired an Old Note
who has not made the election described below also will be required to defer
deduction of a portion of interest on debt incurred on continued to purchase
or carry the Old Note or New Note until disposition of the New Note in a
taxable transaction. A Holder who has elected under applicable Code provisions
to include market discount in income annually as such discount accrues will
not, however, be required to treat any gain recognized as ordinary income
under these rules. Holders should consult their tax advisors as to the portion
of any gain that would be taxable as ordinary income under these provisions.
Subsequent holders who acquire New Notes at a market discount also will be
subject to these rules.
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Acquisition Premium. An exchanging Holder who acquired an Old Note (or a
subsequent Holder of a New Note who acquires such New Note) at a cost in
excess of its adjusted issue price (i.e., its original issue price increased
by the portion of OID previously includible in the gross income of all prior
holders, determined without regard to any reduction of OID attributable to any
acquisition premium paid by prior holders, and decreased by all payments
previously made thereon) immediately after such acquisition, but less than or
equal to its stated redemption price at maturity, will be considered to have
purchased such Note at an "acquisition premium." Under the acquisition premium
rules contained in the Code, such Holder generally would be entitled to a
reduction in the amount of interest otherwise includible in income with
respect to such Note.
Amortizable Bond Premium. Generally, if the initial tax basis of an Old
Note (or a New Note in the case of a subsequent Holder of a New Note) for a
holder exceeds its stated redemption price at maturity (which will be
determined by reference to an earlier call date if the call price would reduce
the amount of premium), such excess may be treated as "amortizable bond
premium" that is allocated among the interest payments on the Old Note (and
the New Note after the Exchange) using a constant interest rate method over
the Old Note's remaining term. In such case, a holder will not have to report
any OID in income. The amount allocated to each interest payment would be
applied against and reduce the amount of such interest payment (with a
corresponding reduction in basis). This interest offset would be available
only if an election under Section 171 of the Code is made or is in effect.
This election would apply to all debt instruments held or subsequently
acquired by the electing holder on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent
of the IRS.
Applicable High-Yield Discount Obligation Rules. The otherwise allowable
deductions for accrued OID on debt instruments issued by a corporation will be
deferred, and in certain circumstances subject to disallowance in part, if
such debt instruments constitute applicable high yield discount obligations
("AHYDOs"). The New Notes will constitute AHYDOs if: (i) the yield to maturity
of the New Notes exceed the relevant applicable federal rate at the time of
issue of the Old Notes (the "AFR") by more than 5 percentage points and (ii)
contrary to the Company's expectations, they have "significant original issue
discount" as defined in Section 163(i)(2) of the Code. If the New Notes
constitute AHYDOs then the Company will not be entitled to deduct OID accruing
with respect thereto until such interest is actually paid. In addition, if the
yield to maturity of the New Notes exceeds the AFR by more than 6 percentage
points then a portion of such interest corresponding to such excess (i) will
not be deductible by the Company at any time and (ii) may be eligible for the
dividends received deduction available to corporate holders in certain
circumstances.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, payments of principal (including any amounts in respect of
OID), premium, and any accrued interest with respect to a New Note, and the
proceeds of a sale of a New Note within the United States will be subject to
information reporting, and possibly to "backup withholding" at a rate of 31%
if the Holder fails to provide its taxpayer identification number on Service
Form W-9, or otherwise fails to establish an exemption from backup
withholding.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange pursuant to
the Exchange Offer.
PLAN OF DISTRIBUTION
A broker-dealer holding Old Notes may participate in the Exchange Offer
provided that it acquired the Old Notes for its own account as a result of
market-making or other trading activities. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. For a period
of 180 days after the Expiration Date, the Company will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in
connection with any such resale.
61
<PAGE>
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Act and any profit on any such resale
of New Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Act.
LEGAL MATTERS
The legality of the securities covered by this Prospectus has been passed
upon by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New York, counsel
to the Company.
EXPERTS
The audited consolidated financial statements of the Company as of June
30, 1994 and 1995 and for each of the three years in the period ended June 30,
1995 included in this Prospectus and elsewhere in this Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to said report which includes an explanatory paragraph with
respect to the change in method of accounting for certain distribution center
start-up and catalog development costs as discussed in Note 3 to the
consolidated financial statements.
62
<PAGE>
WAXMAN USA INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholder's Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
WAXMAN USA INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors of Waxman USA Inc.:
We have audited the accompanying consolidated balance sheets of
Waxman USA Inc., (a Delaware corporation) and subsidiaries (the "Company") as
of June 30, 1994 and 1995, and the related consolidated statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended June 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Waxman USA Inc.
and subsidiaries as of June 30, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 4 to the consolidated financial statements,
effective July 1, 1992, the Company changed its method of accounting for
certain distribution center start-up and catalog development costs.
Cleveland, Ohio, Arthur Andersen, LLP
March 29, 1996.
F-2
<PAGE>
WAXMAN USA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1995 AND 1996
AND FOR THE NINE MONTHS THEN ENDED ARE UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
----------- ----------
1994 1995 1996
-------- -------- ------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
CASH $2,065 $2,062 $1,792
ACCOUNTS RECEIVABLE, NET 36,343 33,440 34,772
INVENTORIES 79,112 70,931 66,588
PREPAID EXPENSES 4,718 4,662 4,627
----- ----- -----
TOTAL CURRENT ASSETS 122,238 111,095 107,779
------- ------- -------
PROPERTY AND EQUIPMENT:
LAND 394 394 423
BUILDINGS 8,634 10,035 10,389
EQUIPMENT 18,174 16,996 18,432
------ ------ ------
27,202 27,425 29,244
LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION (14,240) (13,274) (15,509)
-------- -------- --------
12,962 14,151 13,735
------ ------ ------
COST OF BUSINESSES IN EXCESS OF NET ASSETS 24,621 23,857 23,319
ACQUIRED, NET
UNAMORTIZED DEBT ISSUANCE COSTS 6,468 5,553 4,739
OTHER ASSETS 3,345 2,413 4,590
----- ----- -----
$169,634 $157,069 $154,162
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $3,250 5,704 $5,597
ACCOUNTS PAYABLE 17,742 19,070 22,568
ACCRUED LIABILITIES 6,635 7,791 9,672
----- ----- -----
TOTAL CURRENT LIABILITIES 27,627 32,565 37,837
------ ------ ------
LONG-TERM DEBT, NET OF CURRENT PORTION 53,372 54,693 49,944
PUSH-DOWN DEBT 87,425 87,536 81,897
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
PREFERRED STOCK, $0.10 PAR VALUE PER SHARE;
AUTHORIZED AND UNISSUED 1,000 SHARES -- -- --
COMMON STOCK, $0.01 PAR VALUE PER SHARE; 9,000
SHARES AUTHORIZED; 100 SHARES ISSUED AND -- -- --
OUTSTANDING
PAID-IN CAPITAL 21,462 21,462 21,462
RETAINED DEFICIT (13,157) (12,654) (736)
ADVANCES TO WAXMAN INDUSTRIES, INC. (7,095) (26,533) (36,242)
------- -------- --------
TOTAL STOCKHOLDER'S EQUITY 1,210 (17,725) (15,516)
----- -------- --------
$169,634 $157,069 $154,162
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-3
<PAGE>
WAXMAN USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1995 AND 1996
AND FOR THE NINE MONTHS THEN ENDED ARE UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended June 30, March 31,
----------------------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $198,443 $213,571 $232,304 $177,161 $175,477
Cost of sales 133,177 139,262 152,368 115,559 123,239
------- ------- ------- ------- -------
Gross profit 65,266 74,309 79,936 61,602 52,238
Operating expenses 50,526 53,321 58,590 43,787 46,207
Corporate charge 3,946 4,217 3,891 3,164 2,521
Restructuring and other non-recurring charges 3,543 -- 2,779 -- --
----- ------- ----- ------- --------
Operating income 7,251 16,771 14,676 14,651 3,510
Interest expense 13,321 13,790 18,952 13,735 13,567
------ ------ ------ ------ ------
Income (loss) from continuing operations
before provision (benefit) for
income taxes and cumulative effect of change in
accounting (6,070) 2,981 (4,276) 916 (10,057)
Provision (benefit) for income taxes (1,600) 1,500 (1,100) 550 (2,990)
------- ----- ------- --- -------
Income (loss) from continuing operations
before cumulative effect of change in
accounting (4,470) 1,481 (3,176) 366 (7,067)
(Loss) on and reversal of loss on disposal of
Consumer Products, net of tax -- -- (6,600) -- 6,600
------- ------- ------- ------- -----
Income (loss) before cumulative effect of
change in accounting (4,470) 1,481 (9,776) 366 (467)
Cumulative effect of change in accounting for
distribution center start-up and catalog
development costs, net of tax benefit 1,266 -- -- -- --
----- ------- ------- ------- -------
Net income (loss) $(5,736) $1,481 $(9,776) $366 $(467)
======== ====== ======== ==== ======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-4
<PAGE>
WAXMAN USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1995 AND 1996
AND FOR THE NINE MONTHS THEN ENDED ARE UNAUDITED)
<TABLE>
<CAPTION>
Advances Total
Preferred Common Paid-in Retained to Waxman Stockholder's
Stock Stock Capital Deficit Industries, Inc. Equity
--------- ------ ------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1992 $ -- $ -- $29,843 $(47,974) $37,912 $19,781
Net loss (5,736) (5,736)
Capital contribution from parent,
net 7,462 7,462
Advances to parent, net (2,040) (2,040)
Currency translation adjustment (144) (144)
------ ------ ------ -------- ------ --------
Balance June 30, 1993 -- -- 29,843 (46,392) 35,872 19,323
Net income 1,481 1,481
Capital contribution from parent,
net 32,125 32,125
Advances to parent, net (120) (120)
Contribution of intercompany
balances with
Waxman Industries, Inc. in 42,847 (42,847) --
connection with the Corporate
Restructuring
Dividend to Waxman Industries,
Inc. in connection with the (51,228) (51,228)
Corporate Restructuring
Currency translation adjustment (371) (371)
------ ------ ------ -------- ------ --------
Balance June 30, 1994 -- -- 21,462 (13,157) (7,095) 1,210
Net loss (9,776) (9,776)
Capital contribution from parent,
net 10,298 10,298
Advances to parent, net (19,438) (19,438)
Currency translation adjustment (19) (19)
------ ------ ------ -------- ------ --------
Balance June 30, 1995 -- -- 21,462 (12,654) (26,533) (17,725)
Net loss (unaudited) (467) (467)
Capital contribution from parent,
net (unaudited) 12,715 12,715
Advances to parent, net
(unaudited) (9,709) (9,709)
Currency translation adjustment
(unaudited) (330) (330)
------- ------- ------- -------- ------ --------
Balance March 31, 1996 (unaudited) $ - $ - $21,462 $(736) $(36,242) $(15,516)
======= ======= ======= ====== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-5
<PAGE>
WAXMAN USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Amounts and disclosures as of March 31, 1995 and 1996
and for the nine months then ended are unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended June 30, March 31,
-------------------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH FROM (USED FOR):
Operations:
Net income (loss) $(5,736) $1,481 $(9,776) $366 $(467)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operations:
Cumulative effect of change in accounting 2,110 -- -- -- --
Restructuring and other non-cash charges 3,543 -- 2,779 -- 11,000
Loss on (reversal of loss on) disposal of -- -- 11,000 -- (11,000)
Consumer Products
Depreciation and amortization 8,401 7,108 8,278 6,077 6,378
Changes in assets and liabilities:
Accounts receivable, net (2,009) (1,075) 1,268 (137) (1,332)
Inventories 609 (8,486) 1,270 (3,437) 2,237
Prepaid expenses 342 59 (144) 205 35
Accounts payable (7,973) (201) (972) 309 3,498
Accrued liabilities (429) 237 (1,297) 4,652 1,881
Other, net (144) (371) (19) (79) (330)
Net cash provided by (used for) operations (1,286) (1,248) 12,387 7,956 11,900
------- ------ ------- ----- -------
Investments:
Capital expenditures, net (1,396) (3,338) (3,995) (2,527) (1,877)
Change in other assets (2,881) (1,222) (2,381) (1,046) (2,719)
------- ------- ------- ------- -------
Net cash used for investments (4,277) (4,560) (6,376) (3,573) (4,596)
------- ------- ------- ------- -------
Financing:
Net borrowings under (repayments of) credit agreements (86) 38,943 4,775 4,893 (1,856)
Borrowings under (repayment of) term loan -- 15,000 (1,000) (1,000) (3,000)
Push-down debt -- (23,000) -- -- (5,724)
Debt issuance costs -- (4,515) (649) (649) --
Advances to Waxman Industries, Inc., net (2,040) (42,967) (19,438) (12,263) (9,709)
Capital contribution from parent, net 7,462 32,125 10,298 4,874 12,715
Net dividend to parent in connection with the Corporate
Restructuring -- (8,381) -- -- --
------- ------- --------- --------- -------
Net cash provided by (used for) financing 5,336 7,205 (6,014) (4,145) (7,574)
----- ----- ------- ------- -------
Net increase (decrease) in cash (227) 1,397 (3) 238 (270)
Balance beginning of period 895 668 2,065 2,065 2,062
--- --- ----- ----- -----
Balance end of period $668 $2,065 $2,062 $2,303 $1,792
==== ====== ====== ====== ======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-6
<PAGE>
WAXMAN USA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1995 AND 1996
AND FOR THE NINE MONTHS THEN ENDED ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF CONSOLIDATION AND REORGANIZATION
The accompanying consolidated financial statements include the
accounts of Waxman USA Inc. ("Waxman USA") and its wholly-owned subsidiaries
(collectively, the "Company"). All significant intercompany transactions and
balances are eliminated in consolidation.
Waxman USA, a wholly-owned subsidiary of Waxman Industries, Inc.
("Waxman Industries"), was formed on February 2, 1994. During fiscal 1994,
Waxman Industries restructured its domestic operations such that Waxman
Industries is now a holding company whose only material assets are the capital
stock of its subsidiaries (the "Corporate Restructuring"). As part of the
Corporate Restructuring, Waxman Industries formed (a) Waxman USA as a holding
company for the subsidiaries that comprise and support Waxman Industries'
domestic operations, (b) Waxman Consumer Products Group Inc. ("Consumer
Products"), to own and operate Consumer Products Group Division, and (c) WOC
Inc. ("WOC"), to own and operate Waxman USA's domestic subsidiaries, other
than Barnett Inc. ("Barnett") and Consumer Products. On May 20, 1994, Waxman
completed the Corporate Restructuring by (i) contributing the capital stock of
Barnett to Waxman USA, (ii) contributing the assets and liabilities of the
Consumer Products Group Division to Consumer Products, (iii) contributing the
assets and liabilities of Madison Equipment Division to WOC, (iv) contributing
the assets and liabilities of Medal Distributing Division to WOC, (v) merging
U.S. Lock Corporation and LeRan Copper & Brass Inc. into WOC, (vi)
contributing the capital stock of TWI International, Inc. ("TWI") to Waxman
USA and (vii) contributing the capital stock of Western American Manufacturing
Inc. ("WAMI") to TWI. The "Operating Companies" consist of Barnett, Consumer
Products and WOC. This restructuring was accounted for based upon each
entity's historical carrying amounts.
The Company operates in a single business segment - the distribution
of plumbing, electrical and hardware products. Substantially all of the
Company's business is conducted in the United States.
B. RESTRICTED CASH BALANCES
In accordance with the terms of the Operating Companies Credit
Facility (as defined in Note 5), all of the Operating Companies' available
cash is pledged to the lenders and is required to be used to pay down
borrowings under the Operating Companies Credit Facility on a daily basis.
C. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for doubtful
accounts of $1,353 and $1,422 at June 30, 1994 and 1995, respectively and
$4,137 at March 31, 1996.
The Company sells plumbing, electrical and hardware products
throughout the United States to do-it-yourself retailers, mass merchandisers,
smaller independent retailers and plumbing, electrical repair and remodeling
contractors. The Company performs ongoing credit evaluations of its customers'
financial condition. The Company's largest customer accounted for 12% of net
sales in 1993, 13% in 1994, 14% in 1995 and 11% for the nine months ended
March 31, 1996. The Company's ten largest customers accounted for
approximately 24% of net sales in 1993, 25% in 1994, 24% in 1995 and 20% for
the nine months ended March 31, 1996 and approximately 29% and 25% of accounts
receivable at June 30, 1994 and 1995, respectively.
D. INVENTORIES
At June 30, 1994 and 1995 and March 31, 1996, inventories, consisting
primarily of finished goods, are carried at the lower of first-in, first-out
(FIFO) cost or market. The Company regularly evaluates its inventory carrying
value, with appropriate consideration given to any excess, slow-moving and/or
nonsalable inventories.
F-7
<PAGE>
E. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets at annual depreciation rates
ranging from 2 1/2% to 30%. Leasehold improvements are amortized on a
straight-line basis over the term of the lease or the useful life of the
asset, whichever is shorter. For income tax purposes, accelerated methods are
used. Depreciation expense totaled $2,320 in 1993, $2,419 in 1994, $2,534 in
1995 and $1,988 and $2,293 for the nine months ended March 31, 1995 and 1996,
respectively.
F. EARNINGS PER SHARE
The Company, as a wholly-owned subsidiary of Waxman Industries, had
minimal common shares outstanding. As such, historical earnings per share
amounts are not considered meaningful.
G. COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED
Cost of businesses in excess of net assets acquired is being
amortized primarily over 40 years using the straight-line method. Management
has evaluated its accounting for goodwill, considering such factors as
historical profitability and current operating cash flows and believes that
the asset is realizable and the amortization period is appropriate under the
Company's present strategic direction. Goodwill amortization expense totaled
$721 in 1993, $724 in 1994, $764 in 1995, and $538 for the nine months ended
March 31, 1995 and 1996. Accumulated amortization totaled $4,469, $5,233 and
$5,771 at June 30, 1994 and 1995 and March 31, 1996, respectively.
H. UNAMORTIZED DEBT ISSUANCE COSTS
Unamortized debt issuance costs relate to the long-term and push-down
debt (see Note 5) and are amortized over the life of the related debt.
I. FOREIGN CURRENCY TRANSLATION
All balance sheet accounts of foreign subsidiaries are translated at
the exchange rate as of the end of the fiscal year. Income statement items are
translated at the average currency exchange rates during the fiscal year. The
resulting translation adjustment is recorded as a component of stockholder's
equity. Foreign currency transaction gains or losses are included in the
consolidated statements of income as incurred.
J. FINANCIAL STATEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Management estimated the loss on disposal of the Consumer Products
business to be $6.6 million, net of applicable income tax of $4.4 million as
of June 30, 1995. Refer to Notes 2 and 12 for further discussion of the loss
on disposal of the Consumer Products business.
K. IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets
to be Disposed of," and SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company will recognize a charge in the fourth quarter for
the impairment of long-lived assets at Consumer Products and other certain
smaller divisions. Management is currently evaluating the impact, if any, the
adoption of SFAS No. 123 will have on the financial statements. Management
expects to adopt SFAS No. 121 by June 30, 1996 and SFAS No. 123 when
practicable, but no later than the first quarter of fiscal 1997.
L. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements as of and for the nine months ended March
31, 1995 and 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments excluding an
$11.0 million charge recorded by the Consumer Products business described in
Note 12) necessary for a fair presentation of the unaudited financial
statements for these interim periods have been included. The results of
interim periods are not necessarily indicative of the results to be obtained
for a full year.
F-8
<PAGE>
2. DISCONTINUED OPERATIONS
In August 1995, Waxman Industries announced its decision to sell the
Consumer Products business and entered into a letter of intent, which
subsequently expired, to sell the business for $50.0 million in cash. Consumer
Products markets and distributes its products primarily to mass merchandisers
and large D-I-Y retailers while Barnett's focus is directed primarily to
repair and remodeling contractors, independent hardware stores and maintenance
managers. As such, Consumer Products was reported as a discontinued operation
as of June 30, 1995 and an estimated loss on disposal of $6.6 million, net of
applicable income tax of $4.4 million, was recorded. Since the consummation of
the Barnett Public Offering, described in Note 12, the Company has ceased its
efforts to sell Consumer Products and instead retains and continues to operate
Consumer Products. Effective March 28, 1996, Consumer Products' results are
included as a continuing operation. Prior periods have been restated to
conform to the current period presentation. Refer to Note 12 -- Subsequent
Events for further discussion.
Net assets related to Consumer Products at June 30, 1995 consisted of
working capital of $51,944, net property and equipment of $5,278, other assets
of $10,332 and bank debt of $2,689, without any allowance for the estimated
loss on disposal. Consumer Products' net sales were $71,971 and operating
income was $3,045 in fiscal 1995. The fiscal 1995 operating income was
negatively impacted by a restructuring charge of $2,779 discussed in Note 4
below.
3. CHANGE IN ACCOUNTING
Effective July 1, 1992, the Company accelerated its amortization of
certain distribution center start-up costs and catalog development costs. The
Company had historically amortized such costs over a period not to exceed five
years which, in management's opinion, represented the period over which
economic benefits were received. The acceleration of amortization was made to
conform with prevailing industry practice. By accelerating amortization,
certain costs associated with the opening of new distribution center
operations are amortized over a period of twelve months commencing the month
in which the distribution center opens. Costs associated with the development
and introduction of new catalogs are amortized over the life of the catalog,
not to exceed a period of one year.
The cumulative effect of this change on years prior to 1993 totaled
$1,266 (net of applicable income tax benefit of $844) and is reported
separately in the fiscal 1993 consolidated statement of income. The additional
effect of the change in fiscal 1993 was to decrease the income from continuing
operations before provision for income taxes and cumulative effect of change
in accounting by $1,191. This is primarily the result of the introduction of a
new maintenance products catalog and, in management's opinion, is not
necessarily indicative of the expected impact of accelerated amortization on
future years.
4. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the fourth quarter of 1993, as a result of certain actions
taken as a part of its strategy to refocus and build on its existing core
businesses, the Company recorded a $3,543 restructuring charge. The provision
for restructuring charge included $2,000 for an estimate of the loss to be
incurred upon the sale of two entities, including anticipated operating
results through the projected disposal dates. The Company was unable to come
to terms with the prospective buyer of the two entities. The Company evaluated
the net realizable value of the carrying value of the assets previously held
for sale in accordance with its normal ongoing policy regarding impairment and
concluded that no further writedown of the net carrying value of the assets
was required in excess of the reserve previously established.
The remainder of the 1993 restructuring charge included $1,543 of
costs incurred to consolidate administrative functions and transfer two of
Consumer Products' domestic packaging facilities to Mexico. These costs
principally consist of lease and severance termination costs of $500,
relocation costs, including payroll and freight costs of $500 and a write-off
of fixed assets of $100.
During the fourth quarter of 1995, the Company downsized Consumer
Products' distribution network from four locations to three and as a result
incurred warehouse closure costs of $2,779, which included $635 of future
costs to be incurred relating to such closure.
F-9
<PAGE>
5. DEBT
A. HISTORICAL
Total historical debt consisted of the following:
<TABLE>
<CAPTION>
June 30, March 31,
---------------- --------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Operating Companies Credit Facility $39,378 $43,708 $42,066
Term Loan 15,000 14,000 11,000
Other notes, maturing through 2007, bearing interest at rates ranging
from 7.6% to 9.8%, secured by the land and building of TWI. 2,244 2,689 2,475
------ ------ ------
Subtotal-long-term debt 56,622 60,397 55,541
Less: current portion (3,250) (5,704) (5,597)
------- ------- -------
Long-term debt, net of current portion $53,372 $54,693 $49,944
======= ======= =======
</TABLE>
On May 20, 1994, the Operating Companies entered into a $55 million
secured credit facility with an affiliate of Citibank, N.A., as agent, which
includes a $20 million letter of credit subfacility (the "Operating Companies
Credit Facility"). The Operating Companies Credit Facility has an initial term
of three years. The Operating Companies Credit Facility is subject to
borrowing base formulas. Interest is based, at the Company's option, on either
(i) the prime rate of Citibank, N.A. plus 1.5%, or (ii) LIBOR plus 3.0%. These
rates will be increased by 0.5% until such time as the term loan, discussed
below, has been repaid in full. The weighted average interest rate on
borrowings outstanding under the Operating Companies Credit Facility was 9.3%
during fiscal 1995. The Company is required to pay a commitment fee of 0.5%
per annum on the unused commitment. The Operating Companies Credit Facility is
secured by the accounts receivable, inventory, certain general intangibles and
unencumbered fixed assets of the Operating Companies and 65% of the capital
stock of one subsidiary of TWI. The agreement requires that the Company
maintain minimum amounts of fixed charge coverage, net worth, and EBITDA to
total cash interest ratios and not exceed specified amounts of leverage and
capital expenditures. In addition, the agreement restricts the Company's
ability to advance or dividend cash to Waxman Industries. The Company was in
compliance with all covenants at June 30, 1995.
On May 20, 1994, the Operating Companies also entered into a $15
million three-year term loan with Citibank, N.A., as agent (the "Term Loan").
The Term Loan bears interest at a rate per annum equal to 1.5% over the
interest rate under the Operating Companies Credit Facility and is secured by
a junior lien on the collateral under the Operating Companies Credit Facility.
Principal payments on the Term Loan of $1.0 million each are required
quarterly. The Term Loan's financial covenants are identical to the covenants
contained in the Operating Companies Credit Facility.
In September 1995, the Operating Companies entered into an amendment
to the Operating Companies Credit Facility and Term Loan which amended certain
definitions contained therein to eliminate the impact of Consumer Products'
loss on disposal as well as its warehouse closure charge from the financial
covenant calculations. In addition, the amendment modified certain of the
financial covenants.
On April 3, 1996, the Company entered into an amendment and
restatement of the Operating Companies Credit Facility and Term Loan. Refer to
Note 12- Subsequent Events for further discussion.
B. PUSH-DOWN DEBT
As discussed in Note 12, the Company offered to exchange $48.75
million of 11 1/8% Senior Notes due 2001 (the "Exchange Notes") for the
13 3/4% Senior Subordinated Notes of Waxman Industries. Approximately $43.03
million of Senior Subordinated Notes were exchanged on April 3, 1996. Also, as
discussed in Note 12, the Company and Barnett sold 55.1% of the common stock
of Barnett. As such, in accordance with certain Securities and Exchange
Commission rules, the consolidated financial statements presented herein have
been adjusted to reflect push-down adjustments from Waxman Industries,
including debt which the Company or Waxman Industries intend to refinance, or
that is guaranteed by the
F-10
<PAGE>
Company, together with related interest expense and debt issuance costs.
Borrowings that were secured by the inventories and accounts receivable of
certain subsidiaries of the Company have also been pushed down. The push-down
adjustments have been made for all periods presented in the accompanying
consolidated financial statements. Debt pushed-down from Waxman Industries
consisted of the following:
June 30, March 31,
---------------- ---------
1994 1995 1996
---- ---- ----
Senior Secured Notes $38,675 $38,786 $38,871
Senior Subordinated Notes 48,750 48,750 43,026
------ ------ ------
$87,425 $87,536 $81,897
======= ======= =======
Interest expense, including amortization of debt issuance costs
related to the pushed-down debt, totaling $13,139 in 1993, $13,068 in 1994,
$12,187 in 1995, and $8,993 and $8,651 for the nine months ended March 31,
1995 and 1996, respectively, has been reflected in the accompanying
consolidated statements of income. Unamortized debt issuance costs of $3,370,
$2,990 and $2,525 and accrued interest of $1,919, $1,929 and $2,637 relating
to the pushed-down debt has also been reflected in the accompanying
consolidated balance sheets as of June 30, 1994 and 1995 and March 31, 1996,
respectively. The net effect of push-down accounting adjustments has been
reflected as a contribution to Stockholder's Equity in the accompanying
consolidated financial statements.
1. Senior Secured Notes
In September 1991, Waxman Industries completed a private placement of
$50 million of 7-year Senior Secured Notes, including detachable warrants to
purchase 1.0 million shares of Waxman Industries' common stock (the
"Warrants"). At the time of issuance, the Senior Secured Notes included $42.5
million of 12.25% fixed rate notes and $7.5 million of floating rate notes
with interest at 300 basis points over the 90 day LIBOR rate. The Senior
Secured Notes are redeemable in whole or in part, at the option of Waxman
Industries, after September 1, 1995 at a price of 102.45% for the fixed rate
notes and 103% for the floating rate notes. The redemption prices decrease
annually to 100% of the principal amounts at September 1, 1996. Annual
mandatory redemption payment of $14.45 million for the fixed rate notes, and
$2.55 million for the floating rate notes are due on each of September 1, 1996
and September 1, 1997 and are calculated to retire 68% of the principal amount
of the Senior Secured Notes prior to maturity. As discussed in Note 2, Waxman
Industries intends to retire the Senior Secured Notes with a portion of the
net proceeds from the Barnett Public Offering. Waxman Industries expects to
incur an extraordinary charge upon the early retirement of these notes which
primarily will represent the acceleration of unamortized debt issuance costs
which were $1.8 million at March 31, 1996. The Senior Secured Notes, which are
guaranteed by the Company and secured by a pledge of all of the outstanding
stock of Barnett, Consumer Products and WOC, are senior in right of payment to
all subordinated indebtedness and pari passu with all other senior
indebtedness of Waxman Industries. Refer to Note 12 - Subsequent Events - for
further discussion.
The Warrants are exercisable through September 1, 1996, at a price of
$4.60 per share. A portion of the proceeds of the private placement was
allocated to the Warrants and, as a result, Waxman Industries' paid-in capital
increased by $1.0 million in fiscal year 1992. The related $1 million
reduction in the recorded principal amount of the Senior Secured Notes is
being amortized as interest expense over the life of the Senior Secured Notes.
The Senior Secured Note indenture contains various covenants,
including dividend restrictions and minimum operating cash flow requirements.
The operating cash flow covenant requires a minimum ratio of operating cash
flow to interest expense of 1.1 to 1.0 (Waxman Industries' actual ratio for
fiscal 1995 was approximately 1.2 to 1.0). For purposes of calculating this
ratio, operating cash flow is calculated based on the results of continuing
operations only and interest expense excludes any non-cash interest relating
to Waxman Industries' Deferred Coupon notes.
During November 1993 and May 1994, Waxman Industries completed
solicitations of consents from the holders of the Senior Secured Notes which,
among other things, amended the net worth and certain other financial
covenants and permitted the completion of Waxman Industries' Restructuring and
eliminated any prospective defaults resulting from the adverse results and
events relating to Waxman Industries' discontinued Canadian operations.
F-11
<PAGE>
2. Senior Subordinated Notes
In June 1989, Waxman Industries issued $100 million principal amount
of 13 3/4% Senior Subordinated Notes (the "Senior Subordinated Notes") due
June 1, 1999. The Senior Subordinated Notes are redeemable in whole or in
part, at the option of Waxman Industries, after June 1, 1995 at a price of
103.438% which decreases annually to 100% of the principal amount at the
maturity date. Annual mandatory redemption payments of $20 million commencing
June 1, 1996 are calculated to retire 60% of the issue prior to maturity. In
case of a change in control of Waxman Industries, the Noteholders have the
right to require Waxman Industries to repurchase the Senior Subordinated Notes
at established redemption prices. The Senior Subordinated Notes, which are
unsecured, are subordinate in right of payment to all senior debt and are
senior in right of payment to Waxman Industries' Convertible Senior
Subordinated Debentures. Under the terms of the Senior Subordinated Note
indenture, Waxman Industries may not incur additional indebtedness which is
subordinate to senior debt and senior to the Senior Subordinated Notes.
Additionally, the indenture agreement contains various other covenants,
including dividend restrictions and minimum net worth requirements. As
discussed above, the Company intends to issue the Exchange Notes in exchange
for the Senior Subordinated Notes.
During 1994, Waxman Industries exchanged $50 million principal amount
of the Senior Subordinated Notes for a like amount of Deferred Coupon Notes.
The $50 million of Senior Subordinated Notes exchanged satisfy its mandatory
redemption requirements with respect to such issue and, as a result the $20
million mandatory redemption payments due on June 1, 1996 and 1997 have been
satisfied and the mandatory redemption payment due on June 1, 1998 has been
reduced to $8.8 million. The Deferred Coupon Notes are secured by a pledge of
the capital stock of the Company.
During November 1993 and May 1994, Waxman Industries completed a
solicitation of consents from the holders of the Senior Subordinated Notes
which, among other things, amended the net worth and certain other financial
covenants and permitted the completion of Waxman Industries' restructuring and
eliminated any prospective defaults resulting from the adverse results and
events relating to Waxman Industries' discontinued Canadian operations.
C. MISCELLANEOUS
The Company made interest payments of $603 in 1994, $5,606 in 1995,
$4,388 for the nine months ended March 31, 1995 and $4,437 for the nine months
ended March 31, 1996.
Management believes the carrying values of its bank loans approximate
their fair values as they bear interest based upon the banks' prime lending
rates. No quoted market prices are available for any of the push-down debt as
the debt is not actively traded. It was not practical to estimate the fair
value of the Senior Secured Notes and Senior Subordinated Notes because of the
inability to estimate fair value without incurring excessive costs.
6. INCOME TAXES
Effective July 1, 1993, the Company accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 utilizes
an asset and liability approach and deferred taxes are determined based on the
estimated future tax effects of differences between the financial statement
and tax bases of assets and liabilities given the provisions of the enacted
tax laws. Prior to the implementation of SFAS No. 109, the Company accounted
for income taxes using the provisions of Accounting Principles Bulletin No.
11. The implementation of SFAS No. 109 had no material impact on the financial
statements.
Commencing July 1, 1994, the Company began participating in a tax
sharing agreement with Waxman Industries. Under this agreement, the Company's
federal tax liability is equal to the lesser of (i) the federal tax liability
calculated on a stand-alone basis or (ii) Waxman Industries' federal tax
liability. Prior to July 1, 1994, the tax sharing agreement with Waxman
Industries' allocated income taxes to the Company at approximately 40% of
pretax income. As Waxman Industries has $75.0 million of available domestic
net operating loss carry forwards at June 30, 1995 for income tax purposes,
which expire through 2010, the Company has no liability for federal taxes at
June 30, 1995. The Company files separate income tax returns in certain states
based on the results of operations within the applicable states.
F-12
<PAGE>
The components of income (loss) from continuing operations before
income taxes and cumulative effect of change in accounting are as follows:
Nine Months
Ended
Fiscal Year Ended June 30, March 31,
----------------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Domestic $(6,631) $1,990 $(4,638) $378 ($11,115)
Foreign 561 991 362 538 1,058
--- --- --- --- -----
Total $(6,070) $2,981 $(4,276) $916 ($10,057)
======== ====== ======== ==== =========
The domestic income (loss) from continuing operations before income
taxes and cumulative effect of change in accounting includes all interest
expense related to the push-down debt.
The components of the provisions (benefit) for income taxes,
calculated on a stand-alone basis, are as follows:
Nine Months
Ended
Fiscal Year Ended June 30, March 31,
-------------------------------- ----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
U.S. Federal............. $(1,810) $1,300 $(1,280) $400 ($3,286)
State and Foreign........ 210 200 180 150 296
--- --- --- --- ---
$(1,600) $1,500 $(1,100) $550 ($2,990)
======== ====== ======== ==== ========
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws. The deferred tax assets and
liabilities relate primarily to depreciation of the Company's property and
equipment, certain accrued liabilities and inventory.
Deferred taxes and amounts payable to Waxman Industries are included
in Advances to Waxman Industries, Inc. in the accompanying consolidated
balance sheets.
The following table reconciles the U.S. statutory rate applied to
pretax income to the Company's provision (benefit) for income taxes:
<TABLE>
<CAPTION>
Nine Months
Ended
Fiscal Year Ended June 30, March 31,
---------------------------------- ---------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Statutory Rate applied to pretax income........ $(2,064) $1,014 $(1,497) $321 ($3,520)
State and foreign taxes, net........................ 139 132 117 98 192
Goodwill amortization............................... 245 246 267 188 188
Other............................................... 80 108 13 (56) 149
-- --- -- ---- ---
Provision (benefit) for income taxes....... $(1,600) $1,500 $(1,100) $550 ($2,990)
======= ====== ======= ==== =======
</TABLE>
The Company made income tax payments of $421 in fiscal 1993, $368 in
fiscal year 1994, $510 in fiscal 1995 and $400 and $450 for the nine months
ended March 31, 1995 and 1996, respectively.
F-13
<PAGE>
7. STOCKHOLDER'S EQUITY
Stockholder's equity includes cumulative currency translation
adjustments of $(122), $(141) and $(471) at June 30, 1994 and 1995 and March
31, 1996, respectively.
8. LEASE COMMITMENTS
The Company leases certain warehouse and office facilities and
equipment under operating lease agreements, which expire at various dates
through 2003.
Future minimum rental payments are as follows:
FISCAL YEAR ENDED
JUNE 30,
1996 $4,865
1997 4,262
1998 3,601
1999 2,908
2000 1,652
Thereafter 1,670
-----
$18,958
Total rent expense charged to operations was $3,641 in 1993, $3,894
in 1994, $4,922 in 1995 and $3,008 and $3,097 for the nine months ended March
31, 1995 and 1996, respectively.
Consumer Products leases certain warehouse space from related
parties. Related parties rent expense totaled $471, $588, $260 and $179 in
fiscal 1994, fiscal 1995, and for the nine months ended March 31, 1995 and
1996, respectively.
9. PROFIT SHARING PLAN
The eligible employees of certain subsidiaries of the Company
participate in Waxman Industries' trusteed, profit sharing and 401(K)
retirement plan. Contributions are discretionary and are determined by Waxman
Industries' Board of Directors. The charges to operations for profit sharing
contributions totaled $115 in 1993, $0 in 1994 and $0 in 1995. The Company
offers no other post-retirement or postemployment benefits.
10. RELATED-PARTY TRANSACTIONS
The Company engages in certain business transactions with Waxman
Industries and affiliates. Sales to Waxman Industries affiliates in 1993, 1994
and 1995 were immaterial.
Management fees charged to the Company by Waxman Industries are
presented in the accompanying consolidated statements of income as corporate
charge. Commencing July 1, 1994, in accordance with the Intercorporate
Agreement, the management fees charged to the Company are the lesser of (a) 2%
of the net sales or (b) the actual cost of providing services to the Company.
Prior to July 1, 1994, management fees charged to the Company represented 2%
of net sales.
During 1992, Waxman Industries completed a private placement of
seven-year Senior Secured Notes. The notes are guaranteed by the Company and
secured by a pledge of all of the outstanding stock of Consumer Products,
Barnett and WOC. See Notes 2 and 6.
On May 20, 1994, Waxman Industries exchanged $50 million of its
Senior Subordinated Notes for $50 million initial accreted value of 12.75%
Senior Secured Deferred Coupon Notes. The Deferred Coupon Notes are secured by
a pledge of the capital stock of the Company.
F-14
<PAGE>
The following is a reconciliation of the activity contributed to
capital related to the push-down debt described in Note 5:
<TABLE>
<CAPTION>
Nine Months
Ended
Fiscal Year Ended June 30 March 31,
-------------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Push-down interest expense,
including amortization of
debt issuance costs $13,139 $13,068 $12,187 $8,651
Change in push-down debt (112) 22,888 (111) 5,639
Income taxes (5,087) (4,677) (1,388) (402)
Change in push-down interest
accrual (26) 133 (10) (708)
Change in push-down of unamortized
debt issuance costs (452) 713 (380) (465)
----- --- ----- -----
Capital contribution from Waxman Industries, net $7,462 $32,125 $10,298 $12,715
====== ======= ======= =======
</TABLE>
11. CONTINGENCIES
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the consolidated financial statements.
12. SUBSEQUENT EVENTS AND RELATED MATTERS
On February 1, 1996, Barnett filed a registration statement with the
Securities and Exchange Commission with respect to an initial public offering
(the "Barnett Public Offering") of its common stock (the "Barnett Common
Stock"). On March 28, 1996, the registration statement with respect to the
Barnett Public Offering was declared effective and on April 3, 1996, the
Barnett Public Offering was consummated. In such offering, 7,207,200 shares,
representing approximately 55.1% of the Barnett Common Stock, were sold in the
aggregate by Barnett and the Company at an initial public offering price per
share of $14.00, resulting in aggregate net proceeds of $93.4 million. As of
May 8, 1996, as a result of the Company's ownership of certain convertible
non-voting preferred stock of Barnett, the Company beneficially owns
approximately 49.9% of the Barnett Common Stock and approximately a 54%
economic interest of the capital stock of Barnett.
Of the $48.5 million of net proceeds received by Barnett in the
Barnett Public Offering, Barnett used (i) approximately $23.0 million to repay
all of the outstanding indebtedness borrowed by it under the secured credit
facility (the "Operating Companies Revolving Credit Facility") among Citicorp
USA, Inc. as agent, and Barnett, Consumer Products and WOC Inc. ("WOC"), each
a wholly-owned subsidiary of Waxman USA Inc. ("Waxman USA"), (ii) $22.0
million to pay a dividend evidenced by a note payable to Waxman USA, which
funds were in turn distributed to the Company, and (iii) $3.5 million for
working capital. The $44.9 million of net proceeds received by the Company
from the Barnett Public Offering, together with payment from Barnett of the
$22.0 million note payable described above, were, or will be, applied
primarily to repay debt including (i) all of the $39.2 million principal
amount of Waxman Industries' 12 1/4% Senior Secured Notes due 1998 and
Floating Rate Senior Secured Notes due 1998 (collectively, the "Senior Secured
Notes") plus accrued interest and redemption premium of approximately $1.7
million, thereby eliminating the mandatory sinking fund requirements relating
to the Senior Secured Notes which were scheduled to commence in September
1996, and (ii) approximately $5.0 million of the $10.0 million outstanding
indebtedness and accrued interest under the secured term loan (the "Term
Loan") among Citibank, N.A., as agent, and Barnett, Consumer Products and WOC.
The remaining net proceeds received by the Company (approximately $21.0
million) are intended to be used to (i) reduce additional outstanding
indebtedness borrowed by Consumer Products or WOC under the Restated Credit
Agreement, described later in this note, and/or (ii) retire the Company's 12
3/4% Senior Secured Deferred Coupon Notes due 2004 (the "Deferred Coupon
Notes") and/or Waxman USA's 11 1/8% Senior Notes due 2001 (the "Exchange
Notes") and/or (iii) reinvest in Consumer Products'
F-15
<PAGE>
and/or WOC's businesses.
The Company will record an extraordinary charge in the fourth quarter
related to the deferred financing costs attributed to indebtedness repaid from
the net proceeds of the Barnett Public Offering, as well as a substantial gain
from the Barnett Public Offering.
Under current accounting pronouncements, the Company would account
for its remaining interest in Barnett under the equity method of accounting,
as the Company's voting interest will be less than 50%. However, the Financial
Accounting Standards Board has issued an exposure draft (the "FASB Exposure
Draft") on "Consolidated Financial Statements: Policy and Procedures," which,
if adopted in substantially the same form as the FASB Exposure Draft, would
require the Company to continue to consolidate Barnett in the Company's
consolidated financial statements.
The Company has decided to retain the Consumer Products business, as
described in Note 2, which was previously reported as a discontinued
operation. As a result of this decision, the $11.0 million loss on disposal
recorded at June 30, 1995 has been reversed for the nine months ended March
31, 1996. Also, as a result of management's review of Consumer Products as a
continuing operation, an $11.0 million charge, primarily for the carrying
value of certain inventories and other capitalized assets, has been recorded
by Consumer Products for the nine months ended March 31, 1996 and is included
in consolidated operating results.
The Company is currently continuing its review of the strategic
direction of the Consumer Products business as a continuing operating and
charges may be recorded in the fourth quarter to restructure the business,
including eliminating certain product lines, optimizing product offerings and
reexamining certain warehousing costs. The Company is also assessing certain
accounting policies for capitalized costs at Consumer Products. The Company
will recognize a charge in the fourth quarter for the impairment of long-lived
assets at Consumer Products and other certain smaller divisions. Although the
Company believes that the reevaluation of Consumer Products' strategic
direction will improve its earnings potential, there can be no assurance that
Consumer Products results of operations will improve over time.
On April 3, 1996, the Company, through its wholly-owned subsidiary
Waxman USA consummated the previously announced offer to exchange $48.75
million principal amount of Exchange Notes for a like amount of the Company's
outstanding 13 3/4% Senior Subordinated Notes ("Subordinated Notes") due 1999
and in connection therewith solicited consents to certain amendments to the
indenture pursuant to which the Subordinated Notes were issued. Approximately
$43.03 million of Subordinated Notes were exchanged. The Exchange Notes were
not registered under the Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent registration or an applicable
exemption from such registration requirements.
In connection with the Barnett Public Offering, Waxman USA entered
into an amendment and restatement of the Operating Companies Revolving Credit
Facility and Term Loan (the "Restated Credit Agreement") to provide for, among
other things, an approximate one-year secured credit facility providing for
revolving credit advances of up to $25.0 million and term loans of up to $5.0
million ("Restated Term Loans") and a release of Barnett from such lending
arrangements. As a result of the limited duration of the Restated Credit
Agreement, the Company is currently negotiating with respect to a refinancing
of such credit facility. Although the Company believes, based on discussions
to date, that it will be able to refinance the Restated Credit Agreement
before its expiration, there can be no assurance that it will be able to do so
or as to the terms of any such refinancing it will be able to obtain.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of Waxman USA Inc. (the "Company")
provides that each person who is a party to or involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she was a director or officer of the Company,
shall be indemnified and held harmless by the Company to the fullest extent
authorized by the Delaware General Corporation Law against all expense,
liability and loss reasonably incurred by such person in connection therewith.
The Certificate of Incorporation provides that the right to indemnification
contained therein is a contract right and includes the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that if the Delaware General
Corporation Law requires, the payment of such expenses incurred in advance of
the final disposition of a proceeding shall be made only upon delivery to the
Company of an undertaking to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified. The Company maintains directors' and officers' liability
insurance covering certain liabilities incurred by the directors and officers
of the Company in connection with the performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
3.1 Certificate of Incorporation of Waxman USA Inc.
3.2 By-laws of Waxman USA Inc..
4.1* Indenture, dated as of April 3, 1996, by and between Waxman USA Inc.
and the United States. Trust Company of New York, as Trustee, with
respect to the 11 1/8% Senior Notes due 2001 of Waxman USA Inc.,
including the form of Senior Notes (Exhibit 10.14 to Waxman
Industries, Inc.'s Amendment No. 9 to Registration Statement on Form
S-2, Registration No. 33-54211, incorporated by reference herein).
4.2* Registration Rights Agreement, dated as of April 3, 1996, by and
between Waxman USA Inc. and the United States Trust Company of New
York (Exhibit 10.15 to Waxman Industries, Inc.'s Amendment No. 9 to
Registration Statement on Form S-2, Registration No. 33-54211,
incorporated by reference herein).
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding
legality.
10.1* Tax Sharing Agreement dated May 20, 1994 among Waxman Industries, Inc.,
Waxman USA Inc., Barnett Inc., Waxman Consumer Products Group Inc.,
WOC Inc. and Western American Manufacturing, Inc. (Exhibit 10.6 to
Waxman Industries, Inc.'s Amendment No. 9 to Registration Statement
on Form S-2, Registration No. 33-54211, incorporated by reference
herein).
10.2* Intercorporate Agreement dated May 20, 1994 among Waxman Industries,
Inc., Waxman USA, Barnett Inc., Waxman Consumer Products Group Inc.
and WOC Inc. (Exhibit 10.7 to Waxman Industries, Inc.'s Amendment No.
9 to Registration Statement on Form S-2, Registration No. 33-54211,
incorporated by reference herein).
10.3* Intercorporate Agreement dated March 28, 1996 among Waxman Industries,
Inc., Waxman USA Inc., Barnett Inc., Waxman Consumer Products Group
Inc., WOC Inc. and TWI, International, Inc. (Exhibit 10.8 to Waxman
Industries, Inc.'s Amendment No. 9 to Registration Statement on Form
S-2, Registration No. 33-54211, incorporated by reference herein).
10.4* Credit Agreement dated as of May 20, 1994 among Waxman USA Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc., the
Lenders and Issuers party thereto and Citicorp USA, Inc. as Agent,
and certain exhibits thereto (Exhibit 10.9 to Waxman Industries,
Inc.'s Amendment No. 9 to Registration Statement on Form S-2,
Registration No. 33-54211, incorporated by reference herein).
II-1
<PAGE>
10.5* Term Loan Credit Agreement dated as of May 20, 1994 among Waxman USA
Inc., Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto and Citibank, N.A., as Agent
(Exhibit 10.10 to Waxman Industries, Inc.'s Amendment No. 9 to
Registration Statement on Form S-2, Registration No. 33-54211,
incorporated by reference herein).
10.6* Amended and Restated Credit Agreement dated as of April 3, 1996 among
Waxman USA Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto and Citibank, N.A., as Agent
(Exhibit 10.12 to Waxman Industries, Inc.'s Amendment No. 9 to
Registration Statement on Form S-2, Registration No. 33-54211,
incorporated by reference herein).
12.1** Statement re: computation of ratios.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Shereff, Friedman, Hoffman & Goodman, LLP (contained in its
opinion filed as Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney (included in Part II of this Registration Statement).
25.1** Statement of eligibility and qualification on Form T-1 of the United
States Trust Company of New York, as Senior Note Trustee (bound
separately).
99. (a) Form of Letter of Transmittal with respect to the Exchange Offer
(b) Form of Notice of Guaranteed Delivery
(c) Substitute Form W-9 and Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9
- ----------------
* Incorporated herein by reference as indicated.
** To be filed by Amendment.
(B) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
II-2
<PAGE>
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Waxman USA
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, State of Ohio on the 14th day of May,
1996.
WAXMAN USA INC.
By /s/ Armond Waxman
--------------------------
Armond Waxman,
President and Co-Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints Armond Waxman and Michael J.
Vantusko, and each of them (with full power of each of them to act alone), his
true and lawful attorneys-in-fact, with full power of substitution and
resubstitution for him and on his behalf, and in his name, place and stead, in
any all capacities to execute and sign any and all amendments or
post-effective amendments to this registration statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorneys-in-fact or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof and the
Registrant hereby confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Melvin Waxman Chairman of the Board, May 14, 1996
- --------------------------- Co-Chief Executive Officer
Melvin Waxman and Director
/s/ Armond Waxman President, May 14, 1996
- --------------------------- Co-Chief Executive Officer
Armond Waxman and Director
/s/ Michael J. Vantusko Vice President-Finance, May 14, 1996
- --------------------------- Chief Financial Officer
Michael J. Vantusko and Assistant Secretary
(Principal Accounting Officer)
/s/ William R. Pray Director May 14, 1996
- ---------------------------
William R. Pray
/s/ Samuel J. Krasney Director May 14, 1996
- ---------------------------
Samuel J. Krasney
/s/ Irving Z. Friedman Director May 14, 1996
- ---------------------------
Irving Z. Friedman
/s/ Judy Robins Director May 14, 1996
- ---------------------------
Judy Robins
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit Description Sequential Page Number
- -------------- ------------------- ----------------------
3.1 Certificate of Incorporation of
Waxman USA Inc.
3.2 By-laws of Waxman USA Inc.
4.1* Indenture, dated as of April 3,
1996, by and between Waxman USA
Inc. and the United States Trust
Company of New York, as Trustee,
with respect to the 11 1/8%
Senior Notes due 2001 of Waxman
USA Inc., including the form of
Senior Notes (Exhibit 10.14 to
Waxman Industries, Inc.'s
Amendment No. 9 to Registration
Statement on Form S-2,
Registration No. 33-54211,
incorporated by reference
herein).
4.2* Registration Rights Agreement,
dated as of April 3, 1996, by
and between Waxman USA Inc. and
the U.S. Trust Company of New
York (Exhibit 10.15 to Waxman
Industries, Inc.'s Amendment No.
9 to Registration Statement on
Form S-2, Registration No.
33-54211, incorporated by
reference herein).
5.1 Opinion of Shereff, Friedman,
Hoffman & Goodman, LLP regarding
legality.
10.1* Tax Sharing Agreement dated May 20,
1994 among Waxman Industries,
Inc. Waxman USA Inc., Barnett
Inc. , Waxman Consumer Products
Group Inc., WOC Inc. and Western
American Manufacturing, Inc.
(Exhibit 10.6 to Waxman
Industries, Inc.'s Amendment No.
9 to Registration Statement on
Form S-2, Registration No.
33-54211, incorporated by
reference herein).
10.2* Intercorporate Agreement dated May
20, 1994 among Waxman
Industries, Inc. Waxman USA
Inc., Barnett Inc., Waxman
Consumer Products Group Inc. and
WOC Inc. (Exhibit 10.7 to Waxman
Industries, Inc.'s Amendment No.
9 to Registration Statement on
Form S-2, Registration No.
33-54211, incorporated by
reference herein).
10.3* Intercorporate Agreement dated March
28, 1996 among Waxman
Industries, Inc., Waxman USA
Inc., Barnett Inc., Waxman
Consumer Products Group Inc.,
WOC Inc. and TWI, International,
Inc.
II-5
<PAGE>
Exhibit Number Exhibit Description Sequential Page Number
- -------------- ------------------- ----------------------
(Exhibit 10.8 to Waxman
Industries, Inc.'s Amendment No.
9 to Registration Statement on
Form S-2, Registration No.
33-54211, incorporated by
reference herein).
10.4* Credit Agreement dated as of May
20, 1994 among Waxman USA Inc.,
Barnett Inc., Waxman Consumer
Products Group Inc. and WOC
Inc., the Lenders and Issuers
party thereto and Citicorp USA,
Inc., as Agent, and certain
exhibits thereto (Exhibit 10.9
to Waxman Industries, Inc.'s
Amendment No. 9 to Registration
Statement on Form S-2,
Registration No. 33-54211,
incorporated by reference
herein).
10.5* Term Loan Credit Agreement dated
as of May 20, 1994 among Waxman
USA Inc., Barnett Inc., Waxman
Consumer Products Group, Inc.
and WOC Inc., the Lenders and
Issuers party thereto and
Citibank, N.A., as Agent
(Exhibit 10.10 to Waxman
Industries, Inc.'s Amendment No.
9 to Registration Statement on
Form S-2, Registration No.
33-54211, incorporated by
reference herein).
10.6* Amended and Restated Credit
Agreement dated as of April 3,
1996 among Waxman USA Inc.,
Waxman Consumer Products Group
Inc. and WOC Inc., the Lenders
and Issuers party thereto and
Citibank, N.A., as Agent
(Exhibit 10.12 to Waxman
Industries, Inc.'s Amendment No.
9 to Registration Statement on
Form S-2, Registration No.
33-54211, incorporated by
reference herein).
12.1** Statement re: computation
of ratios.
21.1 List of Subsidiaries of
the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Shereff, Friedman,
Hoffman & Goodman, LLP
(contained in its opinion filed
as Exhibit 5.1 to this
Registration Statement).
24.1 Power of Attorney (included
in Part II of this Registration
Statement).
25.1** Statement of eligibility and
qualification on Form T-1 of the
United States Trust
II-6
<PAGE>
Exhibit Number Exhibit Description Sequential Page Number
- -------------- ------------------- ----------------------
Company of New York as Senior
Note Trustee (bound separately).
99. (a) Form of Letter of Transmittal
with respect to the Exchange
Offer
(b) Form of Notice of Guaranteed
Delivery
(c) Substitute Form W-9 and
Guidelines for Certification of
Taxpayer Identification Number
on Substitute Form W-9
- ------------------
* Incorporated herein by reference as indicated.
** To be filed by Amendment.
II-7
CERTIFICATE OF INCORPORATION
OF
WAXMAN USA INC.
The undersigned, for the purposes of forming a corporation pursuant
to the Delaware General Corporation Law, DOES HEREBY CERTIFY as follows:
FIRST: The name of the Corporation is: Waxman USA Inc.
SECOND: The registered office of the Corporation is to be located at
the Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, State of Delaware, 19801. The name of its registered
agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is 10,000 shares, divided into two classes. The
designation of each class, the number of shares of each class, and the par
value, if any, of the shares of each class are: 9,000 shares of Common Stock,
par value $.01 per share and 1,000 shares of Preferred Stock, par value $.10
per share.
The designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of each class of
stock are as follows:
The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, with such voting powers, full or limited, or
without voting powers and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue thereof adopted by the Board
of Directors, subject to the limitations prescribed by law and in accordance
with the provisions hereof, including (but without limiting the generality
thereof) the following:
(a) The designation of the series, the number of shares to
constitute the series and to increase or decrease such number;
(b) The dividend rate, if any, of the series, the conditions
and dates upon which such dividends shall be payable, the relation
which such dividends shall bear to the dividends payable on any
other class or classes of stock, and whether such dividends shall be
cumulative or noncumulative;
<PAGE>
(c) Whether the shares of the series shall be subject to
redemption by the Corporation and, if made subject to such
redemption, the times, prices and other terms and conditions of such
redemption;
(d) The terms and amount of any sinking fund providing for the
purchase or redemption of the shares of the series;
(e) Whether or not the shares of the series shall be
convertible into or exchangeable for shares of any other class or
classes or of any other series of any class or classes of stock of
the Corporation, and, if provision be made for conversion or
exchange, the times, prices, rates, adjustments and other terms and
conditions of such conversion or exchange;
(f) The extent, if any, to which the holders of the shares of
the series shall be entitled to vote with respect to the election of
directors or otherwise;
(g) The restrictions, if any, on the issue or reissue of any
additional preferred stock; and
(h) The rights of the holders of the shares of the series upon
the dissolution, liquidation, or winding up of the Corporation.
Upon the retirement of any shares of any series of Preferred
Stock, such shares shall resume the status of authorized and unissued shares
of Preferred Stock generally without limitation as to the powers,
designations, preferences and limitations initially granted to the retired
shares.
Subject to the prior or equal rights, if any, of the Preferred
Stock of any and all series stated and expressed by the Board of Directors in
the resolution or resolutions providing for the issuance of such Preferred
Stock: the holders of Common Stock shall be entitled (i) to receive dividends
when, as and if declared by the Board of Directors out of any funds legally
available therefor, (ii) in the event of any dissolution, liquidation or
winding up of the Corporation, to receive the remaining assets of the
Corporation ratably according to the number of shares of Common Stock held,
and (iii) to one vote for each share of Common Stock held on all matters
submitted to a vote of shareholders. The relative rights, preferences and
limitations of each share of Common Stock shall be the same in all respects.
<PAGE>
FIFTH: The name and mailing address of the Incorporator is:
Scott M. Zimmerman
c/o Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, New York 10022
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
(a) to adopt, amend or repeal the By-Laws of the Corporation in
such manner and subject to such limitations, if any, as shall be set forth in
the By-Laws;
(b) to allot and authorize the issuance of the authorized but
unissued shares of the Corporation, including the declaration of dividends
payable in shares of any class to stockholders of any class; and
(c) to exercise all of the powers of the Corporation, insofar
as the same may lawfully be vested by this certificate in the board of
directors.
SEVENTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that to the extent required by the provisions of Section
102(b)(7) of the Delaware General Corporation Law or any successor statute, or
any other laws of the state of Delaware, this provision shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law hereafter is amended to
authorized the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware General Corporation Law. Any
repeal or modification of this paragraph SEVENTH by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
EIGHTH: The Corporation hereby elects not to be governed by Section 203
of the Delaware General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this 2 day of February, 1994.
/s/ Scott M. Zimmerman
---------------------------
Scott M. Zimmerman
Sole Incorporator
BY-LAWS
OF
WAXMAN USA INC.
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be located at the principal
place of business in said State of such corporation or individual acting as
the Corporation's registered agent in Delaware.
Section 1.2. Other Offices. The Corporation may also have offices and
places of business at such other places both within and without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2.2. Annual Meetings. The annual meeting of stockholders for
the election of directors shall be held at such time on such day, other than a
legal holiday, as the Board of Directors in each such year determines. At the
annual meeting, the stockholders entitled to vote for the election of
directors shall elect, by a plurality vote, a Board of Directors and transact
such other business as may properly come before the meeting.
Section 2.3. Special Meetings. Special meetings of stockholders, for
any purpose or purposes, may be called by a majority of the Board of
Directors. Any such request shall state the purpose or purposes of the
proposed meeting. At any special meeting of stockholders, only such business
may be transacted as is related to the purpose or purposes set forth in the
notice of such meeting.
Section 2.4. Notice of Meetings. Written notice of every meeting of
stockholders, stating the place, date and hour thereof and, in the case of a
special meeting of stockholders, the purpose or purposes thereof and the
person or persons by whom or at whose direction such meeting has been called
and such notice is being issued, shall be given not less than ten (10) nor
more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the Chairman of the Board, Secretary, or
the persons calling the meeting, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be given when
deposited
<PAGE>
in the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Nothing
herein contained shall preclude the stockholders from waiving notice as-provided
in Section 4.1 hereof.
Section 2.5. Quorum. The holders of a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote, represented
in person or by proxy, shall be necessary to and shall constitute a quorum for
the transaction of business at any meeting of stockholders. If, however, such
quorum shall not be present or represented at any meeting of stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At any such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. Notwithstanding the
foregoing, if after any such adjournment the Board of Directors shall fix a
new record date for the adjourned meeting, or if the adjournment is for more
than thirty (30) days, a notice of such adjourned meeting shall be given as
provided in Section 2.4 of these By-Laws, but such notice may be waived as
provided in Section 4.1 hereof.
Section 2.6. Voting. At each meeting of stockholders, each holder of
record of shares of stock entitled to vote shall be entitled to vote in person
or by proxy, and each such holder shall be entitled to one vote for every
share standing in his name on the books of the Corporation as of the record
date fixed by the Board of Directors or prescribed by law and, if a quorum is
present, a majority of the shares of such stock present or represented at any
meeting of stockholders shall be the vote of the stockholders with respect to
any item of business, unless otherwise provided by any applicable provision of
law, by these By-Laws or by the Certificate of Incorporation.
Section 2.7. Proxies. Every stockholder entitled to vote at a meeting
or by consent without a meeting may authorize another person or persons to act
for him by proxy. Each proxy shall be in writing executed by the stockholder
giving the proxy or by his duly authorized attorney. No proxy shall be valid
after the expiration of three (3) years from its date, unless a longer period
is provided for in the proxy. Unless and until voted, every proxy shall be
revocable at the pleasure of the person who executed it, or his legal
representatives or assigns except in those cases where an irrevocable proxy
permitted by statute has been given.
Section 2.8. Consents. Whenever a vote of stockholders at a meeting
thereof is required or permitted to be taken in connection with any corporate
action by any provision of statute, the Certificate of Incorporation or these
By-Laws, the meeting, prior notice thereof and vote of stockholders may be
dispensed with if the holders of shares having not less than the minimum
number of votes that would have been necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted shall consent in writing to the taking of such action, which action
shall be set forth in the consent. Where corporate action is taken in such
matter by less than unanimous written consent, prompt written notice of the
taking of such action shall be given thereto to those stockholders who have
not consented in writing hereto.
2
<PAGE>
Section 2.9. Stock Records. The Secretary or agent having charge of
the stock transfer books shall make, at least ten (10) days before each
meeting of stockholders, a complete list of the stockholders entitled to vote
at such meeting or any adjournment thereof, arranged in alphabetical order and
showing the address of and the number and class and series, if any, of shares
held by each. Such list, for a period of ten (10) days prior to such meeting,
shall be kept at the principal place of business of the Corporation or at the
office of the transfer agent or registrar of the Corporation and such other
places as required by statute and shall be subject to inspection by any
stockholder, for any purpose germane to the meeting, at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any stockholder
at any time during the meeting.
ARTICLE III
DIRECTORS
Section 3.1. Number. The number of directors of the Corporation which
shall constitute the entire Board of Directors shall initially be fixed by the
Incorporator and thereafter from time to time by a vote of a majority of the
entire Board and shall be not less than one nor more than fifteen. The first
Board of Directors shall consist of five members.
Section 3.2. Resignation and Removal. Any director may resign at any
time upon written notice of resignation to the Corporation. Any director may
be removed at any time by majority vote of the stockholders then entitled to
vote for the election of directors at a special meeting called for that
purpose, either with or without cause.
Section 3.3. Newly Created Directorship and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason whatsoever shall
be filled by majority vote of the Board. If the number of directors then in
office is less than a quorum, such newly created directorships and vacancies
may be filled by a vote of a majority of the directors then in office. Any
director elected to fill a vacancy shall be elected until the next meeting of
stockholders at which the election of directors is in the regular course of
business, and until his successor has been elected and qualified.
Section 3.4. Powers and Duties. Subject to the applicable provisions
of law, these By-Laws or the Certificate of Incorporation, but in furtherance
and not in limitation of any rights therein conferred, the Board of Directors
shall have the control and management of the business and affairs of the
Corporation and shall exercise all such powers of the Corporation and do all
such lawful acts and things as may be exercised by the Corporation.
Section 3.5. Place of Meetings. All meetings of the Board of Directors
may be held either within or without the State of Delaware.
Section 3.6. Annual Meetings. An annual meeting of each newly
elected Board of Directors shall be held immediately following the annual
meeting of stockholders, and no notice of such meeting
3
<PAGE>
to the newly elected directors shall be necessary in order to legally constitute
the meeting, provided a quorum shall be present, or the newly elected directors
may meet at such time and place as shall be fixed by the written consent of all
of such directors.
Section 3.7. Regular Meetings. Regular meetings of the Board of
Directors may be held upon such notice or without notice, and at such time and
at such place as shall from time to time be determined by the Board.
Section 3 8. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors, the
President or a majority of the Board of Directors. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 3.9. Notice of Meetings. Notice of each special meeting of
the Board (and of each regular meeting for which notice shall be required)
shall be given by the Secretary or an Assistant Secretary and shall state the
place, date and time of the meeting. Notice of each such meeting shall be
given orally or shall be mailed to each director at his residence or usual
place of business. If notice of less than three (3) days is given, it shall be
oral, whether by telephone or in person, or sent by special delivery mail or
telegraph. If mailed, the notice shall be given when deposited in the United
States mail, postage prepaid. Notice of any adjourned meeting, including the
place, date and time of the new meeting, shall be given to all directors not
present at the time of the adjournment, as well as to the other directors
unless the place, date and time of the new meeting is announced at the
adjourned meeting. Nothing herein contained shall preclude the directors from
waiving notice as provided in Section 4.1 hereof.
Section 3.10. Quorum and Voting. At all meetings of the Board of
Directors a majority of the entire Board shall be necessary to and shall
constitute a quorum for the transaction of business at any meeting of
directors, unless otherwise provided by any applicable provision of law, by
these By-Laws, or by the Certificate of Incorporation. The act of a majority
of the directors present at the time of the vote, if a quorum is present at
such time, shall be the act of the Board of Directors, unless otherwise
provided by an applicable provision of law, by these By-Laws or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting
of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, until a quorum shall be present.
Section 3.11. Compensation. The Board of Directors, by the
affirmative vote of a majority of the directors then in office, and
irrespective of any personal interest of any of its members, shall have
authority to establish reasonable compensation of all directors for services
to the Corporation as directors, officers or otherwise.
Section 3.12. Books and Records. The directors may keep the books of
the Corporation, except such as are required by law to be kept within the
state, outside of the State of Delaware, at such place or places as they may
from time to time determine.
4
<PAGE>
Section 3.13. Action without a Meeting. Any action required or
permitted to be taken by the Board, or by a committee of the Board, may be
taken without a meeting if all members of the Board or the committee, as the
case may be, consent in writing to the adoption of a resolution authorizing
the action. Any such resolution and the written consents thereto by the
members of the Board or committee shall be filed with the minutes of the
proceedings of the Board or committee.
Section 3.14. Telephone Participation. Any one or more members of the
Board, or any committee of the Board, may participate in a meeting of the
Board or committee by means of a conference telephone call or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 3.15. Committees of the Board. The Board, by resolution
adopted by a majority of the entire Board, may designate one or more
committees, each consisting of one or more directors. The Board may designate
one or more directors as alternate members of any such committee. Such
alternate members may replace any absent member or members at any meeting of
such committee. Each committee (including the members thereof) shall serve at
the pleasure of the Board and shall keep minutes of its meetings and report
the same to the Board. Except as otherwise provided by law, each such
committee, to the extent provided in the resolution establishing it, shall
have and may exercise all the authority of the Board with respect to all
matters. However, no such committee shall have power or authority to:
(a) amend the Certificate of Incorporation;
(b) adopt an agreement of merger or consolidation;
(c) recommend to the stockholders the sale, lease or
exchange of all or substantially all of the
Corporation's property and assets;
(d) recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) amend these By-Laws; and unless expressly so provided
by resolution of the Board, no such committee shall
have power or authority to:
(f) declare a dividend; or
(g) authorize the issuance of shares of the Corporation
of any class.
ARTICLE IV
WAIVER
Section 4.1. Waiver. Whenever a notice is required to be given by any
provision of law, by these By-Laws, or by the Certificate of Incorporation, a
waiver thereof in writing, signed by the person entitled to notice whether
before or after the time stated therein, shall be deemed equivalent to such
notice. In addition, any stockholder attending a meeting of stockholders in
person or by proxy without protesting prior to the conclusion of the meeting
the lack of notice thereof to him, and any director attending a meeting of the
Board of Directors without protesting prior to the meeting or at
5
<PAGE>
its commencement such lack of notice, shall be conclusively deemed to
have waived notice of such meeting.
ARTICLE V
OFFICERS
Section 5.1. Executive Officers. The officers of the Corporation
shall be a Chairman of the Board, President, Chief Executive Officer or
Co-Chief Executive Officers, and a Secretary. Any person may hold two or more
of such offices. The officers of the Corporation shall be elected annually
(and from time to time by the Board of Directors, as vacancies occur), at the
annual meeting of the Board of Directors following the meeting of stockholders
at which the Board of Directors was elected.
Section 5.2. Other Officers. The Board of Directors may appoint such
other officers and agents, including a Treasurer or Chief Financial Officer,
Vice Presidents, Senior Vice Presidents, Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, as it shall at any time or from time to
time deem necessary or advisable.
Section 5.3. Authorities and Duties. All officers, as between
themselves and the Corporation, shall have such authority and perform such
duties in the management of business and affairs of the Corporation as may be
provided in these By-Laws, or, to the extent not so provided, as may be
prescribed by the Board of Directors.
Section 5.4. Tenure. Removal and Resignation. The officers of the
Corporation shall be elected or appointed to hold office until their
respective successors are elected or appointed. All officers shall hold office
at the pleasure of the Board of Directors, and any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors for cause or without cause at any regular or special meeting. Any
officer may resign at any time by written notice to the Corporation.
Section 5.5. Vacancies. Any vacancy occurring in any office of the
Corporation, whether because of death, resignation or removal, with or without
cause, or any other reason, shall be filled by the Board of Directors.
Section 5.6. Compensation. The salaries and other compensation of all
officers and agents of the Corporation shall be fixed by or in the manner
prescribed by the Board of Directors.
Section 5.7. Chairman of the Board. The Chairman of the Board, who
shall be a member thereof, shall preside at all meetings of the Board and of
the stockholders at which he shall be present and shall perform such other
duties and exercise such powers as may from time to time be prescribed by the
Board.
6
<PAGE>
Section 5.8. President. The President shall have general charge of
the business and affairs of the Corporation and in the absence of the Chairman
of the Board, the President shall preside at all meetings of the stockholders.
The President shall perform such other duties as are properly required of him
by the Board of Directors.
Section 5.9. Chief Executive Officer. The Chief Executive Officer or
Co-Chief Executive Officers shall have such powers and duties as the Board of
Directors may from time to time prescribe.
Section 5.10. Vice President. Each Vice President, if any, shall
perform such duties as may from time to time be assigned to him by the Board of
Directors.
Section 5.11. Secretary. The Secretary shall attend all meetings of
the stockholders and all meetings of the Board of Directors and shall record
all proceedings taken at such meetings in a book to be kept for that purpose;
he shall see that all notices of meetings of stockholders and meetings of the
Board of Directors are duly given in accordance with the provisions of these
ByLaws or as required by law; he shall be the custodian of the records and of
the corporate seal or seals of the Corporation; he shall have authority to
affix the corporate seal or seals to all documents, the execution of which, on
behalf of the Corporation, under its seal, is duly authorized, and when so
affixed it may be attested by his signature; and in general, he shall perform
all duties incident to the office of the Secretary of a corporation, and such
other duties as the Board of Directors may from time to time prescribe.
Section 5.12. Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer, if any, shall have charge of and be responsible for
all funds, securities, receipts and disbursements of the Corporation and shall
deposit, or cause to be deposited, in the name and to the credit of the
Corporation, all moneys and valuable effects in such banks, trust companies,
or other depositories as shall from time to time be selected by the Board of
Directors. He shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation; he shall render to the
President and to each member of the Board of Directors, whenever requested, an
account of all of his transactions as Treasurer or Chief Financial Officer and
of the financial condition of the Corporation; and in general, he shall
perform all of the duties incident to the office of the Treasurer or Chief
Financial Officer of a corporation, and such other duties as the Board of
Directors may from time to time prescribe.
Section 5.13. Other Officers. The Board of Directors may also elect
or may delegate to the Chairman of the Board, the President or the Chief
Executive Officer(s) the power to appoint such other officers as it may at any
time or from time to time deem advisable, and any officers so elected or
appointed shall have such authority and perform such duties as the Board of
Directors or the Chairman of the Board, the President or the Chief Executive
Officer(s), if he shall have appointed them, may from time to time prescribe.
7
<PAGE>
ARTICLE VI
PROVISIONS RELATING TO STOCK CERTIFICATES AND STOCKHOLDERS
Section 6.1. Form and Signature. The shares of the Corporation shall
be represented by a certificate signed by the President or any Vice President
and by the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer. Any of the foregoing signatures may be a facsimile
thereof, and in the event any such officer who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer
before such certificate is issued, such certificate may be issued by the
Corporation with the same effect as if he were such officer on the date of
issue. Each certificate and shall bear the seal of the Corporation or a
facsimile thereof. Each certificate representing shares shall state upon its
face (a) that the Corporation is formed under the laws of the State of
Delaware, (b) the name of the person or persons to whom it is issued, (c) the
number of shares which such certificate represents and (d) the par value, if
any, of each share represented by such certificate.
Section 6.2. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares of stock to receive dividends or other distributions,
and to vote as such owner, and to hold liable for calls and assessments a
person registered on its books as the owner of stock, and shall not be bound
to recognize any equitable or legal claim to or interest in such shares on the
part of any other person.
Section 6.3. Transfer of Stock. Upon surrender to the Corporation or
the appropriate transfer agent, if any, of the Corporation, of a certificate
representing shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, and, in the event that the
certificate refers to any agreement restricting transfer of the shares which
it represents, proper evidence of compliance with such agreement, a new
certificate shall be issued to the person entitled thereto, and the old
certificate cancelled and the transaction recorded upon the books of the
Corporation.
Section 6.4. Lost Certificates. etc. The Corporation may issue a new
certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed, and the Board may
require the owner of such lost, mutilated, stolen or destroyed certificate, or
his legal representatives, to make an affidavit of the fact and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation on account of the alleged loss,
mutilation, theft or destruction of any such certificate or the issuance of
any such new certificate.
Section 6.5. Record Date. For the purpose of determining the
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or to express written consent to any corporate
action without a meeting, or for the purpose of determining stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fax, in advance, a record date. Such date shall
not be more
8
<PAGE>
than sixty (60) nor less than ten (10) days before the date of any such meeting,
nor more than sixty (60) days prior to any other action, except that for the
determination of stockholders entitled to consent to corporate action in writing
without a meeting, the date shall not be more than ten (10) days after the Board
adopts the resolution fixing the record date.
Section 6.6. Regulations. Except as otherwise provided by law, the
Board may make such additional rules and regulations, not inconsistent with
these By-Laws, as it may deem expedient, concerning the issue, transfer and
registration of certificates for the securities of the Corporation. The Board
may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars and may require all certificates
for shares of capital stock to bear the signature or signatures of any of
them.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1. Dividends and Distributions. Dividends and other
distributions upon or with respect to outstanding shares of stock of the
Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, bonds, property, or in stock of the
Corporation. The Board shall have full power and discretion, subject to the
provisions of the Certificate of Incorporation or the terms of any other
corporate document or instrument to determine what, if any, dividends or
distributions shall be declared and paid or made.
Section 7.2. Checks. etc. All checks or demands for money and notes or
other instruments evidencing indebtedness or obligations of the Corporation
shall be signed by such officer or officers or other person or persons as may
from time to time be designated by the Board of Directors.
Section 7.3. Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
Section 7.4. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 7.5. General and Special Bank Accounts. The Board may
authorize from time to time the opening and keeping of general and special
bank accounts with such banks, trust companies or other depositories as the
Board may designate or as may be designated by any officer or officers of the
Corporation to whom such power of designation may be delegated by the Board
from time to time. The Board may make such special rules and regulations with
respect to such bank accounts, not inconsistent with the provisions of these
By-Laws, as it may deem expedient.
9
<PAGE>
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
Section 8.1. Indemnification by Corporation. To the extent permitted
by law, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment) the Corporation shall
indemnify any person against any and all judgments, fines, and amounts paid in
settling or otherwise disposing of actions or threatened actions, and expenses
in connection therewith, incurred by reason of the fact that he, his testator
or intestate is or was a director or officer of the Corporation or of any
other corporation of any type or kind, domestic or foreign, which he served in
any capacity at the request of the Corporation. To the extent permitted by
law, expenses so incurred by any such person in defending a civil or criminal
action or proceeding shall at his request be paid by the Corporation in
advance of the final disposition of such action or proceeding.
ARTICLE IX
ADOPTION AND AMENDMENTS
Section 9.1. Power to Amend. These By-Laws may be amended or repealed
and any new By-Laws may be adopted by the Board of Directors; provided that
these By-Laws and any other ByLaws amended or adopted by the Board of
Directors may be amended, may be reinstated, and new By-Laws may be adopted,
by the stockholders of the Corporation entitled to vote at the time for the
election of directors.
10
May 10, 1996
Waxman USA Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
Gentlemen:
Waxman USA Inc., a Delaware corporation (the "Company"), is
transmitting for filing with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement"), relating to the offer and sale by the Company of up to
$43,026,000 aggregate principal amount of its Series B 11 1/8% Senior Notes due
2001 (the "Notes"). This opinion is an exhibit to the Registration Statement.
We have from time to time acted as special securities
counsel to the Company in connection with certain corporate and securities
matters, and in such capacity we have participated in various corporate and
other proceedings taken by or on behalf of the Company in connection with the
proposed offer and sale of the Notes by the Company, as contemplated by the
Registration Statement. We have examined copies (in each case signed,
certified or otherwise proven to our satisfaction to be genuine) of the
Company's Certificate of Incorporation and all amendments thereto, its By-Laws
as presently in effect, minutes and other instruments evidencing actions taken
by its directors and stockholders, the Registration Statement and exhibits
thereto, the indenture governing the Notes (the "Indenture"), the Notes and
such other documents and instruments relating to the Company and the proposed
offering as we have deemed necessary under the circumstances. Insofar as this
opinion relates to securities to be issued in the future, we have assumed that
all applicable laws, rules and regulations in effect at the time of such
issuance are the same as such laws, rules and regulations in effect as of the
date hereof.
We note that we are members of the Bar of the State of New
York and insofar as
<PAGE>
May 10, 1996
Page 2
this opinion may involve the laws of the State of Delaware, our opinion is
based solely upon our reading of the Delaware General Corporation law as
reported in the Prentice-Hall Corporation Law Service, provided, however, that
our opinion as to the due incorporation, valid existence and good standing of
the Company is based solely upon a Certificate of Good Standing obtained from
the Secretary of State of the State of Delaware. Whether or not expressly
stated in the opinion below, the conclusions set forth below are expressed
with respect to the laws of the State of New York, the Delaware General
Corporation Law (subject to the immediately preceding sentence) and the
federal laws of the United States of America, and we express no opinion as to
the applicability or effect of the laws of any other jurisdiction upon the
conclusions set forth below. We do not find it necessary for purposes of this
opinion, and, accordingly, we do not purport to cover herein, the application
of the securities or "blue sky" laws of any state, including the State of
Delaware or New York, to the offer and/or sale of the Notes.
Based on the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware.
2. The Indenture has been duly executed and delivered by the
Company and constitutes, and the Notes, when executed and delivered in
accordance with the Indenture will constitute, the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law and except
that rights of indemnity or contribution or both may be limited by applicable
securities laws or the public policy underlying such laws.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and as an exhibit to any application
under the securities or other laws of any state of the United States or any
foreign jurisdiction which relates to the offering which is the subject of
this opinion, and to the references to this firm appearing under the heading
"Legal Matters" in the Prospectus which is contained in the Registration
Statement.
<PAGE>
May 10, 1996
Page 3
This opinion is as of the date hereof, is limited to the law
in effect as of the date hereof, and we undertake no obligation to advise you
of any change, whether legal or factual, in any matter set forth herein. This
opinion is furnished to you in connection with the filing of the Registration
Statement, and is not to be used, circulated, quoted or otherwise relied upon
for any other purposes, except as expressly provided in the preceding
paragraph.
Very truly yours,
/s/ SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
LIST OF SUBSIDIARIES
Barnett Inc. (1)
Waxman Consumer Products Group Inc.
WOC Inc.
TWI, International, Inc.
- ---------------------
(1) The Company beneficially owns approximately 49.9% of the
voting capital stock of Barnett and, together with
non-voting preferred stock of Barnett owned by the Company,
approximately 54% of the capital stock of Barnett.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Cleveland, Ohio
May 10, 1996
LETTER OF TRANSMITTAL
WAXMAN USA INC.
OFFER FOR ANY AND ALL OUTSTANDING
SERIES A 11 1/8% SENIOR NOTES DUE 2001
IN EXCHANGE FOR
SERIES B 11 1/8% SENIOR NOTES DUE 2001
PURSUANT TO THE PROSPECTUS, DATED MAY __, 1996.
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON JUNE __,
1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR
TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<TABLE>
<CAPTION>
<S> <C> <C>
BY MAIL/OVERNIGHT DELIVERY: FACSIMILE TRANSMISSION NUMBER: BY HAND:
The Huntington National Bank (216) 515-6584 In Cleveland, Ohio:
917 Euclid Avenue The Huntington National Bank
Cleveland, Ohio 44115 CONFIRM BY TELEPHONE: 917 Euclid Avenue
Attn: Corporate Trust CM 23 (216) 515-6662 Cleveland, Ohio 44115
Attn: Corporate Trust CM23
FOR INFORMATION CALL:
(216) 515-6662 In New York, New York:
In care of The Bank of New York
Drop Window Services
101 Barclay Street
New York, New York 10286
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that it has received and reviewed the
Prospectus, dated May __, 1996 (the "Prospectus"), of Waxman USA Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer to issue an aggregate
principal amount of up to $43,026,000 of Series B 11 1/8% Senior Notes Due
2001 (the "New Notes") of the Company in exchange for a like principal amount
of the issued and outstanding Series A 11 1/8% Senior Notes Due 2001 (the "Old
Notes"; and, together with the New Notes, the "Notes") of the Company from the
holders ("Holders") thereof (the "Exchange Offer").
For each Old Note accepted for exchange, the Holder of such Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. The terms of the New Notes are identical in all material
respects to the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes. The New Notes, and the Old
Notes remaining after the Exchange Offer, mature, on September 1, 2001.
Interest on the Notes will be payable semiannually at the rate of 11 1/8% per
annum until maturity, commencing September 1, 1996. The Notes will be
1
<PAGE>
redeemable at the option of the Company at any time and from time to time at
the redemption prices set forth therein. See "Description of Notes" section of
the Prospectus.
The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Company shall notify the holders of the Old Notes of
any extension by means of a press release or other public announcement prior
to 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date.
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Old Notes, if available, is to be make by book-entry transfer to the account
maintained by the Exchange Agent at the Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer -- Book-Entry Transfer" section of the Prospectus. Holders of
Old Notes whose certificates are not immediately available, or who are unable
to deliver their certificates or confirmation of the book-entry tender of
their Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility (a "Book-Entry Confirmation") and all other documents required by
this Letter to the Exchange Agent on or prior to the Expiration Date, must
tender their Old Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company the aggregate principal amount
of Old Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old
Notes tendered hereby and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents that any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the person receiving such New Notes,
whether or not such person is the undersigned, that neither the holder of such
Old Notes nor any such other person has an intention, or an arrangement or
understanding with any person, to participate in the distribution of such New
Notes and that neither the holder of such Old Notes nor any such other person
is an "affiliate," as defined in Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), of the Company.
The undersigned also acknowledges as follows: This Exchange Offer is
being made in reliance on interpretations by the Staff of the Securities and
Exchange Commission (the "SEC") set forth in certain "no-action" letters
issued to third parties and unrelated to the Company and the Exchange Offer,
and based on such interpretations, the Company believes that the New Notes
issued in exchange for the Old Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any such holder that is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no intention, nor any arrangement with
any persons, to participate in the distribution of such New Notes. If the
undersigned is not a broker-dealer, the undersigned represents that it is not
engaged in, and does not intend to engage in, a distribution of New Notes. If
the undersigned has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
the undersigned (i) could not rely on applicable interpretations of the Staff
of the SEC enunciated in Exxon Capital Holdings Corporation (available April
13, 1989) or similar letters and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. If the undersigned is a broker-dealer that will receive
New Notes for its own account in exchange for Old Notes, it acknowledges that
it may be considered a statutory underwriter and that it must deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The above-referenced
prospectus may be the prospectus relating to the Exchange Offer only if it
contains a plan of distribution with respect to such resale transactions (but
need not name the undersigned or disclose the amount of New Notes held by the
undersigned).
The undersigned will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete the sale, assignment and transfer of the Old Notes tendered hereby.
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer -- Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, please deliver the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes
not exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Old Notes. "
3
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX ABOVE.
4
<PAGE>
List below the Old Notes to which his Letter relates. If the space
provided below is inadequate, the Certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES 1 2 3
Aggregate
Principal Amount Principal
Certificate of Amount
Names(s) and Address(es) of Registered Holders(s) Number(s)* Old Notes(s) Tendered**
Total
</TABLE>
* Need not be completed if Old Notes are being tendered by
book-entry transfer.
** Unless otherwise indicated this column, a holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes
indicated in column 2. See Instruction 2.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPETE THE FOLLOWING:
Name of Tendering Institution
---------------------------------------------
Account Number Transaction Code Number
------------------ -------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s)
--------------------------------------------
Window Ticket Number (if any)
--------------------------------------------
Date of Execution of Notice of
Guaranteed Delivery
--------------------------------------------
Name of Institution which
guaranteed delivery
--------------------------------------------
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number Transaction Code Number
--------------------- -----------------
[ ] CHECK HERE IF YOU ARE BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
5
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
To be completed ONLY if To be completed ONLY if
certificates for Old Notes not certificates for Old Notes not
exchanged and/or New Notes are to exchanged and/or New Notes are to
be issued in the name of and sent be sent to someone other than the
to someone other than the person person or persons whose
or persons whose signature(s) signature(s) appear(s) on this
appear(s) on this Letter above, or Letter above or to such person or
if Old Notes delivered by persons at an address other than
book-entry transfer which are not shown in the box entitled
accepted for exchange are to be "Description of Old Notes" on this
returned by credit to an account Letter above.
maintained at the Book-Entry
Transfer Facility other than the
account indicated above.
Issue: New Notes and/or Old Notes to: Issue: New Notes and/or Old Notes to:
Name(s)................................ Name(s)...............................
(Please Type or Print) (Please Type or Print)
....................................... ......................................
(Please Type or Print) (Please Type or Print)
Address................................ Address...............................
....................................... ......................................
(Zip Code) (Zip Code)
(Complete Substitute Form W-9)
Credit unexchanged Old Notes
delivered by book-entry
transfer to the Book-Entry
Transfer Facility account set
forth below.
- ---------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY
BOX ABOVE.
6
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
<TABLE>
<CAPTION>
<S> <C>
Dated: ................................................. .................................., 1996
x..................................................... .................................., 1996
x..................................................... .................................., 1996
Signature(s) by Owner Date
Area Code and Telephone Number.........................................................
</TABLE>
If a holder is tendering any Old Notes, this Letter must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or by any person(s) authorized to
become registered holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor, administrator,
guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
Name(s):.................................................................
.........................................................................
(Please Type or Print)
Capacity:................................................................
Address:.................................................................
.........................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:.................................................
(Authorized Signature)
.........................................................................
(Title)
.........................................................................
(Name and Firm)
Date:.............................................................., 1996
7
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange
Offer for any all outstanding Series A 11 1/8%
Senior Notes Due 2001 in Exchange for the
Series B 11 1/8% Senior Notes Due 2001 of Waxman USA Inc.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by noteholders either if certificates
are to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
reviewed by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below.
Noteholders whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus Pursuant to such procedures (i) such entry must be made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
must receive from such Eligible Institution a properly completed and duly
executed Letter (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered,
setting forth the tender is being made thereby and guaranteeing that within
five New York Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all physically
tendered Old Noes, or a Book-Entry Confirmation, and any other documents
required by the Letter will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or Book- Entry Confirmation as the case
may be, and all other document required by this Letter, are received by the
Exchange Agent within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering holders, but
the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to Midnight, New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above
entitled "Description of Old Notes -- Principal Amount tendered." A reissued
certificate representing the balance of nontendered Old Notes will be sent to
such tendering holder, unless otherwise provided in the appropriate box on
this Letter promptly after the Expiration Date. All of the Old Notes delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
3. SIGNATURES OF THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE
OF SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter as there are different registrations of
certificates.
8
<PAGE>
When this Letter is signed by the registered holder or holders of the
Old Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the New Notes
are to be issued, or any untendered Old Notes are to be reissued, to a person
other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder
or holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND
POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR
TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN
"ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER
OF OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES TENDERED) WHO HAS
NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL
DELIVERY INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box
the name and address to which New Notes issued pursuant to the Exchange Offer
and/or substitute certificates evidencing Old Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Noteholders tendering Old Notes by book-entry transfer may request
that Old Notes not exchanged be credited to such account maintained at the
Book-Entry Transfer Facility as such noteholder may designate hereon. If no
such instructions are given, such Old Notes not exchanged will be returned to
the name or address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder
whose Old Notes are accepted for exchange must provide the Company (as payor)
with such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below, which in the case of a tendering holder who is an
individual, is his or her social security number. If the Company is not
provided with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, delivery to such tendering holder of New Notes
may be subject to backup withholding in an amount equal to 31% of all
reportable payments made after the exchange. If withholding results in an
overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the
"W-9 Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old Notes
must provide its correct TIN by completing the "Substitute Form W-9" set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, or
(ii) the holder has not been notified by the Internal Revenue
9
<PAGE>
Service that such holder is subject to backup withholding as a result of a
failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to
backup withholding. If the tendering holder of Old Notes is a nonresident
alien or foreign entity not subject to backup withholding, such holder must
give the Company a completed Form W-8, Certificate of Foreign Status. These
forms may be obtained from the Exchange Agent. If the Old Notes are in more
than one name or are not in the name of the actual owner, such holder should
consult the W-9 Guidelines for information on which TIN to report. If such
holder does not have a TIN, such holder should consult the W-9 Guidelines for
instructions on applying for a TIN, check the box in Part 2 of the Substitute
Form W-9 and write "applied for" in lieu of its TIN. Note: Checking this box
and writing "applied for" on the form means that such holder has already
applied for a TIN or that such holder intends to apply for one in the near
future. If such holder does not provide its TIN to the Company within 60 days,
backup withholding will begin and continue until such holder furnishes its TIN
to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Old Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY
FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS
LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any
or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Old Notes
for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
10
NOTICE OF GUARANTEED DELIVERY
WAXMAN USA INC.
OFFERING FOR ANY AND ALL OUTSTANDING
SERIES A 11 1/8% SENIOR NOTES DUE 2001
IN EXCHANGE FOR
SERIES B 11 1/8% SENIOR NOTES DUE 2001
PURSUANT TO THE PROSPECTUS, DATED MAY __, 1996.
As set forth in the Prospectus dated May __, 1996 (as the same may be
amended from time to time, the "Prospectus") of Waxman USA Inc. (the
"Company") under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures," and in the accompanying Letter of Transmittal (the "Letter of
Transmittal") and Instruction 1 thereto, this form or one substantially
equivalent hereto must be used to accept the Company's offer (the "Offer") to
issue an aggregate principal amount of up to $43,026,000 of Series B 11 1/8%
Senior Notes Due 2001 (the "New Notes") of the Company in exchange for a like
principal amount of the issued and outstanding Series A 111/8% Senior Notes
Due 2001 (the "Old Notes") of the Company from the holders ("Holders") thereof
if (i) certificates representing the Old Notes to be exchanged are not
immediately available or (ii) the procedures for book-entry transfer cannot be
completed prior to the Expiration Date (as defined below). This form may be
delivered by an Eligible Institution by mail or hand delivery or transmitted,
via facsimile, to the Exchange Agent as set forth below. All capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY
TIME, ON JUNE __, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY
BE WITHDRAWN PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent for the Exchange offer is:
THE HUNTINGTON NATIONAL BANK
BY MAIL/OVERNIGHT DELIVERY: BY HAND:
The Huntington National Bank In Cleveland, Ohio:
917 Euclid Avenue The Huntington National Bank
Cleveland, Ohio 44115 917 Euclid Avenue
Attn.: Corporate Trust CM 23 Cleveland, Ohio 44115
Attn.: Corporate Trust CM23
FACSIMILE TRANSMISSION NUMBER: In New York, New York:
(216) 515-6584 In care of The Bank of New York
Drop Window Services
CONFIRM BY TELEPHONE: 101 Barclay Street
(216) 515-6662 New York, New York 10286
FOR INFORMATION CALL:
(216) 515-6662
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
This form is not to be used to guarantee signatures. If a signature
on the Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures."
All authority herein conferred or agreed to be conferred by this
Notice of Guaranteed Delivery shall survive the death or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and
other legal representatives of the undersigned.
PLEASE SIGN AND COMPLETE
<TABLE>
<CAPTION>
<S> <C>
Signatures of Registered Holder(s) or Authorized Date: ...................................................
Signatory:
................................................
.......................................................... Address:.................................................
.......................................................... .........................................................
Name(s) of Registered Holder(s): ......................... Area Code and Telephone No.:.............................
.......................................................... If Notes will be delivered by book-entry transfer, check
trust company below:
..........................................................
Principal Amount of Notes Tendered: ...................... [ ] The Depository Trust Company
..........................................................
</TABLE>
<PAGE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as
their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):.....................................................................
.............................................................................
Capacity: ...................................................................
Address(es): ................................................................
.............................................................................
.............................................................................
Do not send Old Notes with this form. Old Notes should be sent to the Exchange
Agent together with a properly completed and duly executed Letter of
Transmittal.
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States,
hereby guarantees that, within five New York Stock exchange trading days from
the date of this Notice of Guaranteed Delivery, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with
certificates representing the Old Notes tendered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at a Book-Entry Transfer Facility, pursuant to
the procedure for book-entry transfer set forth in the Prospectus under the
caption "The Exchange Offer -- Procedures for Tendering Old Notes and --
Book-Entry Transfer"), and required documents will be deposited by the
undersigned with the Exchange Agent.
<TABLE>
<CAPTION>
<S> <C>
Name of Firm:............................................. ..........................................................
Authorized Signature
Address:.................................................. Name:.....................................................
.......................................................... Title:....................................................
Area Code and Telephone No. .............................. Date:.....................................................
</TABLE>
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF
OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY
COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
<PAGE>
PART 1-PLEASE PROVIDE YOUR TIN IN
THE BOX AT RIGHT AND CERTIFY BY
SUBSTITUTE SIGNING AND DATING BELOW
FORM W-9 ---------------------------------
Department of the Treasury Social Security Number
or
Payer's Request for Taxpayer ---------------------------------
Identification Number (TIN) Employer Identification Number
PART 2-Check the box if you are NOT
subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code because (1) you have
not been notified that you are subject to
backup withholding as a result of failure
to report all interest or dividends or (2)
the IRS has notified you that you are no
longer subject to backup withholding. [ ]
CERTIFICATION-UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE,
CORRECT AND COMPLETE.
Part 3 -- Awaiting TIN [ ]
SIGNATURE DATE , 1996
------------------------------------- ---------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP
WITHHOLDING OF 31% OF ALL REPORTABLE PAYMENTS MADE TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
Date: , 1996
- -------------------------------------------- ----------------------
Signature
